Here鈥檚 our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
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)?
We are 45 yrs old and have been together 20 years.
Do you have kids/family (if so, how old are they)?
We have four kids. One on his own, two college age and a 5 year old that came later in life as a pleasant surprise.
What area of the country do you live in (and urban or rural)?
Live in suburban area in the east coast. We live far enough from the big cities that we can go visit, but can still live in an affordable community.
What is your current net worth?
We are around the $5 million mark.
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?
The breakdown is as follows:
- Real Estate (rental properties and our home): $1 million
- 401K’s: $1.6 million
- Savings: $470 k (cash hoarding now that the stock market is high)
- Stock Portfolio: $ 1.6 million (around $300k of this unvested stock awards)
- Other assets (have two collectible vehicles): $ 70k
I also have a pension plan with my employer but am not counting that into the equation.
What is your job (type of work and level)?
I work as a senior director in a manufacturing company.
What is your annual income?
Total household income is around $440k. $105k of this is passive income through dividends and rental income.
How did you grow your income so high?
Sometimes I think we have been lucky. We really started with nothing.
We both used to work and when our most recent child arrived, my wife decided to leave the work force. That action made us take a second look at how we managed our finances and we have been able to significantly raise passive income in the last several years.
Before she left the work force, our passive income was just $6k. In addition, I made a good career decision a few years back that led me to an executive role in a manufacturing company that has paid off from the long term compensation perspective. A large portion of my income has come from stock awards.
What is your main source of income?
Our main source of income is my salary and long term bonus compensation. But we are working hard to increase passive income so we can fully retire.
We save and when we have enough money to buy a property, we buy. And then we rent as quickly as possible.
We found a few apartment buildings near large universities that rent very well and can be bought for less than $100k per unit.
We had people telling us that it was a terrible idea to rent to college kids, but our market is mainly foreign students that have good cash flow and typically are not much into parties. So far, it has worked well and have never had a bad tenant.
What is your annual spending and what are the main expenses you have?
We are able to save right now at least half of what comes in, so we have high expenses. But a lot of those are related to the rental units (taxes, HOA, maintenance) that get offset by depreciation and rental income.
We are debt free and our strategy does not include borrowing money for investments. I know some like to borrow to make money in real estate, but I sleep very well at night knowing that I do not owe anything to anyone other than discretionary spending, which we can cut if needed.
How did you accumulate your net worth?
Around 10 years ago, a friend gave us聽The Automatic Millionaire聽book, and that book was the first of several financial books that we devoured. We followed a lot of the recommendations in those books.
But the foundation of it all really is owed to my wife. She knows how to stretch a buck.
She worked for many years and was the top earner in the house. During those years, we never touched her salary. We only lived from mine. To this day, we try not to touch my salary until we have depleted the passive income money.
We still use coupons, we do not drive fancy cars as daily drivers, we never fell into the trap of buying a bigger house. We live in a nice enough neighborhood and I love mowing the lawn with a cheap push mower.
We use craigslist quite a bit. Especially in recent years for baby items and toys. I do not think we have spent more than $50 on toys for the little one as most toys have been free or close to free using craigslist or similar sites. Small kids can’t tell the difference if something is new or not. They just love to play.
A large part of our net worth is tied to the 401k. It’s incredible how that money has grown. I am just sad I don’t have access to it right now, because I would be fully retired if I could access it.
What money mistakes have you made along the way that others can learn from (or something you’d do differently)?
We have made plenty of mistakes. Here are a few:
1. Following advice from a financial advisor at a major bank. We thought he had our best intentions in mind but we learned the hard way that he was selling us a product that generated income for the bank, not us. We closed the investment and took the reins on our investing strategy using a web based trading service.
2. We bought one of our properties at the top of the stock market bubble. Today, it is worth half what we paid. We could have been a bit patient and waited six more months to buy. The silver lining is that the property is paid for and it brings in rental income.
3. We bought a couple of luxury vehicles brand new. A car is probably the worst investment you can make, especially financing one. Those cars have been sold and we have bought cheaper vehicles that are paid for, and take us from A to B just fine. This also allowed me to indulge in a couple of sport cars that are money pits as well. But everyone needs a hobby and both were bought used and thus already depreciated.
4. I have made some bad decisions in stocks as well. Took me a while to figure out that you buy when everyone else wants to sell and you sell when everyone else wants to buy. I also missed out on making significant investments in some companies like Google and Amazon. I bought token amounts of their stock and every time I look at how much they have appreciated, I kick myself for not putting more money in back then.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
1. You have to take ownership for your finances. I speak with so many people that are afraid of this. They don’t take the time to understand their finances or where they spend the money. I would love to see a blog post from you on this topic, why are people afraid of taking ownership of their finances?
2. Generate many sources of income. We took a long time to learn this and it probably cost us a lot of money.
3. Get a good tax accountant. Don’t do the taxes yourself, especially if you have a small business like we do with rental properties. It also helps when you get audited to have representation.
4. There are many haters out there that try to dissuade you from doing things. Don’t listen to them.
5. Set goals, then develop a plan to reach the goals.
6. Don’t get into debt. There are many books and people that recommend you do, but getting into debt is for people that have taken full ownership of their finances and understand the risks. For most of us, who are dumb about our finances, it’s better to avoid going into debt.
7. If you are married, you will be better off if you pool your resources and treat them as joint assets. I know many people that are married and keep separate finances and they all seem to be miserable due to lack of trust, complaints about spending equity and lack of goals.
8. Last, be charitable. Donate to local charities and you will be rewarded.
What are you currently doing to maintain/grow your net worth?
We are focusing on growing passive income. Our two main focus areas are real estate and dividends at the moment. I am also planning to work a few more years and continue to save as much as possible.
Do you have a target net worth you are trying to attain?
We have a mental number of $7 million, but the net worth figure is really irrelevant as we are more focused on generating passive income, as that is the figure that will let me retire.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
I would like to fully retire before I turn 48. So we need to hit our income number in the next two to three years.
We bought a property in the Caribbean (which is rented right now) and would like to snow bird in and out as much as possible once we retire.
I tried consulting as a side gig last year to see how it would be and found that it takes the same effort as working full time and you make less.
So, no downsizing for me, when I retire, the only job will be to tend to the passive income streams.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
I never thought it possible that we could have achieved a high net worth.
The only way to do this is to follow the principles from your ESI site and all the financial books out there. You will see how quickly your net worth will grow once you focus.
Laurie@ThreeYear says
Wow. Great job on accumulating so much in your 401K and taxable accounts! I have a question–how did you get your 401K balance so high, at 45? Have you and your wife maxed your accounts out since you started working?
RetireSoon says
I’m the same age as the millionaire #15 and my 401k is almost exactly 1/2. I’ve maxed out from almost day#1 and a generous match from my employers helped. My wife hasn’t worked in many years but I have colleagues that spouses work so they are roughly 2x my 401k balance as a couple.
Roberto says
I am 55 years old and accumulated over $4.8 million in my roll over IRA. At 45, I had $870k. My wife has $1.6 million in her 401k. I’ve always contributed the max, and our company had a great 15% matching contribution. Like Einstein said “the best invention of mankind is the compounded interest”. So 18% compounded annual growth since age 45, and 22% since age 32.
RetireSoon says
Holy smokes … how are you getting 18% and 22% cagr?
Roberto says
Time was on my side until now. Always invested in S&P500 while with 401k. Once rolled over to IRA, had many more investment options including FAANG shares. Took $200k and bought Sarepta in 2016, within a couple months it paid off and became $600k. Sold it. Now hold $2MM in cash. I am up 35% in 2017. Done for the year. God Bless America!
M15 says
We maxed our contributions and have had good company matches. The amount represents the total of the two accounts.
RetireSoon says
Hopefully esi is ok w a fellow link. RB40 has a good table to look at based on IRS max per year and year started working:
http://retireby40.org/what-if-always-maxed-401k/
Ember @ An Intentional Lifestyle says
That is so awesome! I’m sure your wife is fully enjoying being home with the late surprise little one! 馃檪 We are hoping to get into rental properties, and my husband feels as you do. He wants to pay cash for them all, although on our income that will take a lot longer to get there. How long did it take you to save for your first rental? It’s also interesting that you are determined only to have passive income for retirement. I’ve heard so many talk highly about consulting, so I wasn’t expecting you to say otherwise. Congrats on the millionaire status! Y’all are incredible!
M15 says
It took a couple of years to save enough. interestingly the time it takes to save money for the next property keeps going down as we continue to expand the portfolio.
Mike says
It makes sense in his situation that consulting would be a losing proposition. Note that he attributes much of his wealth to his bonus comp, which comes in the form of equity grants. When he consults, he gets paid hourly with no equity bonus, so it’s not worth it. Equity is a powerful way to build wealth. If you do not have access to equity from an employer, like M15 who apparently is an executive of some sort, consulting may be a good way to go. I have found personally that I make approx the same money consulting while working fewer hours doing exactly the same thing that I used to do at a w2 job. I can then use my extra time to either bill more hours OR to pursue equity opportunities of my own. Bottom line: I think folks who want to get rich should consider ways to get some sort of equity in a business. If it comes via your job, wonderful. It’s far more likely to be something you pursue outside of a job, which the consulting path can facilitate (as can a.w2 job if you can work nights on your own thing).
RetireSoon says
millionaire #15,
Thanks for sharing your story. $5M at 45 is outstanding and I really respect your ability to say “I want passive income” and out a plan / action it!
Curious, when the 2 of you were both working, was your income significantly greater than your current $440k? In a relatively short period (20-25 years) the raw dollars contributed are almost as important as compound interest.
Congrats on building up an impressive networth!
M15 says
It was higher the last couple of years we both worked. we always saved her salary though so when she stopped working, we did not feel any pain. Thanks
Amy @ Life Zemplified says
Congratulations on your financial achievements thus far! Very impressive.
Question on your rental apartment units – are you saying you bought individual apartment units within a larger building or you purchased a building with individual units in it?
Thanks for sharing your story.
M15 says
Individual apartments within a complex. We pay HOA fees that take care of most of the maintenance work. We have looked at owning a building, and are still debating whether it would be a good move for us. All the maintenance and tenant interaction would then fall on us…this would make the income less passive income and more full time job. Not sure if we are ready for that.
FIRE Marshall says
That sounds more like condos/town homes than apartments. I actually invest passively in apartment deals which are 100% passive for me.
Lance @ My Strategic Dollar says
Awesome post! Incredible to see such a high 401K after a fairly short period of time. I’m in the process of accumulating real estate through house hacking, and it has a pretty awesome affect on monthly cash flow.
Mrs. Adventure Rich says
I love how many millionaires are still cutting coupons, using craigslist and buying “normal cars”… sounds like the Millionaire Next Door formula to me! 馃檪
Mr. Freaky Frugal says
You just described Mrs. Freaky Frugal and me, but we didn’t get to FIRE until we were 52. If I known earlier what I know now, we could have done it much sooner.
Mike H says
Your results are very impressive. Is it fair to say that your spending is $105K per year or less than this, given that you will have to pay some taxes on your passive income?
You are basically ready to retire now from the numbers. How much passive income are you looking for by age 48 and how do you plan to achieve this?
-Mike
M15 says
We have a number that changes. some days we think we could do it with $120k, others we panic and think we are going to need more like $200k. the biggest unknown for me right now is health care costs. I still have three dependents and health care costs would be very high.
I have to confess that I am a bit scared about retiring. I have always worked and feel guilty even thinking about retiring sometimes. In my mind, having a bit more passive income available will provide more comfort.
My strategy is to focus on the passive income increase for now and do periodic checks and see if one day we can do like ESI and say the heck with it, we are ready, lets retire.
getagrip says
I can hardly begrudge you a need for conservatism and being a bit worried about retirement. Yet consider looking from the other side that you have approximately $2 million in spendable assets ($1.6M stocks and $470K cash) and $105K in passive income a year. Assuming just $25K of the passive income, and $100K a year from your current holdings conservatively invested to just keep up with inflation, you are at $125K for 20 years drawing down from principal alone. If $50K is a more realistic number from the passive income, you’re looking at $150K a year for twenty years. For 20 years you are essentially good depending on how confident you are in the current passive income.
In twenty years, assuming you completely drain your current stock and cash assets and your $1.6M in retirement accounts has been untouched and earns just 5% above inflation, your retirement account will be worth about $4.25M in todays dollars and with a 3% withdrawal rate at age 65 you would have $127K annually plus $25-50K continuing passive income for $152-177K in annual dollars pretty much indefinitely. This excludes downsizing the primary property, Social Security, sale and investment from or addition of other rental properties, and other possible means to generate income you may have over the years.
I think that’s pretty conservative on the passive income and retirement savings getting you where you need to be. IMHO you are ready to transition financially if you chose to, but you’re the one who has to sleep with the decisions you make and certainly there is nothing wrong with continuing to work if that’s what you want to do. It just seems to me that so many folks want the passive income to completely cover all their current and imagined expenses when the buffers and conservatism are already there.
TiredofWork says
Thanks for doing that math. I constantly run that kind of math in my head, and I need constant validation to convince myself I’m thinking straight. The idea of giving up income from work is stressful, so I need the validation. I’m 53 and may retire in the next few years. I have about $2.5M in taxable investments, and $2.5M in IRA/401(k). (We own our house and have no debt. My wife doesn’t work, and we have like $350K in a 529 for our 12-year-old son.)
I figure I burn the taxable money first, and put off using the IRA money. The investment income will go a long way, but I am open to depleting the capital base. By the time I start tapping the IRA money, it will be something like $4-5M hopefully, which will throw off investment income that should be good indefinitely. Until my son inherits it all and spends it on Ferraris or whatever.
Dave says
Your financial accomplishments are very impressive. You have amassed a high net worth at such a young age. At this pace, you will be a decamillionaire in your early 50’s. This interview was truly inspirational.
Dads Dollars Debts says
This is very inspiring and with his current net worth I would think he could already retire. Thanks for sharing the post….makes me want to go buy some rental property!
Erik @ The Mastermind Within says
I love these interviews. Inspiring, motivating, and tangible. ESI is the way to go! 馃檪
Thanks for sharing
Phr3dly says
Nice work! Not taking on debt resonates with me.
My philosophy (with a few exceptions) has been that those who can afford to take on debt, won’t benefit much from it. Those who would benefit from it, can’t afford it.
I did a “millionaire interview” at another site four years ago. One of the pieces of advice I gave then resonated with a lot of readers, and I still give it today. It applies to unnecessary debt as well:
“””
Time and mental horsepower is limited. Avoid wasting yours on financial gimmicks like rebate credit cards and switching between high(er) yield checking accounts. The benefits from those are dubious at best, and trying to take advantage of them is mental clutter that you are better off without. Here’s a secret: If you’re not wealthy, you don’t have enough money that an extra 0.5% yield on your savings will matter. If you are wealthy, you won’t care about an extra 0.5%.
“””
gtmoney says
This is one of the best yet! High but not not too high of an income, the power of early dual savers and frugality with some measured risk taking. Can’t ask for much more!
Paper Tiger says
What strikes me about many of these articles is that FI comes in all shapes and sizes. FI can be achieved on lower incomes and higher incomes. It really depends on your discipline and living within your means, whatever those means are for individual circumstances. If you are smart and use common sense, lower income can still be built to FI that maintains a standard of living that is reasonable with the income you have been accustomed to living on. People who make more tend to need more when it comes to hitting “The Number” and because they may be accustomed to a higher standard of living, their number is simply higher. It doesn’t mean everyone needs that much and it doesn’t mean FI can’t be within everyone’s grasp from a variety of situations and incomes.
The point is, following the ESI principals and being smart about your spending allows for almost anyone to ultimately achieve FI if they just stay true to the principals, remain patient and let time and compounding work their magic.
Matthew says
I’ve always thought about getting into real estate and having rental properties, but I have no idea what is the best way to start? Would it be something like getting a duplex and then taking one side and renting out the other until it is paid off and rinse and repeat?
Either way… Definitely inspiring and nice to see!
ESI says
Yes, this is one (great) way to get started in RE.
Once my kids are out of college, I plan to help them do just this if they are interested.
FIRE Marshall says
This is sometimes called “house-hacking.” Look around on BiggerPockets.com or your favorite search engine for more info. They have a podcast as does Lifestyles Unlimited. I recommend both.
Jen says
The key is knowledge, discipline and guts. I make money usding my knowledge, but I am also very aggressive with a lot of calculated risk. We have real estate, business and of course, my favorite stocks( IRA and Individual) and mutual funds, which earn more than my paycheck. I do not calculate much when spending some for my luxuries, like mercedez benz and signature watches and aszpparedl, travel, but I make sures I make a lot to finance these things! PAYCHECK to paycheck is not the way to go. And I just could not live by being frugal to become a millionaire!
ThomH says
Another great MM article. I’m curious why M15 and ESI both have not taken a heavier position in RE? Is it simply a matter of diversification? RE seems to be a big key to early FI, as it on average produces a consistent higher passive income when coupled with being sheltered by deductions (I.e. depreciation, etc.). I have taken a heavier position in RE, for just this reason. I FIred earlier this year at 51 yrs old. (wife retired last year at 50 yrs old). I could have never FIred without RE passive income. You both seem to have significant positions in RE, but have the available means to go bigger into RE to generate even greater passive income opportunities. Just curious why you hadn’t bought more RE? Is it merely for diversification, a lack of RE opportunities in your target market(s), or is there another reason? Just curious… I’m contemplating more RE in my portfolio, and would love to hear both of your thoughts . Thanks in advance. Love this series, and have been reading since the old MM series on your former site. Also congrats M15. Great job on your NW and the article.
Jeff B. says
RE isn’t necessarily passive. You have renters to deal with. When they leave, there is cleaning the house and looking for new tenants. the problems with tenants not paying on time etc etc…I prefer to hold a REIT and get most of the upside with little of the downside of having to manage property.
ThomH says
Jeff B. thanks for the response. Yes, RE can certainly be non-passive. I chose early on in my RE investment life to automate as much as possible to keep the investments as passive as possible. I use a management company for the vast majority of typical RE related tasks for this reason. So I typically spend less than 3 to 4 hours a month on administrative related RE activities, so it can also be very passive. I personally chose not invest in an REIT since I have an already heavy RE portfolio, but I recognize it’s likely a better option for most investors, so you make a great point. However, it was clear both M15 and ESI chose to invest directly in RE. Given their success with REI, I was curious why they didn’t grow that portion of their portfolio with what appears to be available assets, which could provide significant immediate passive returns. Again, thanks for responding.
M15 says
I agree with you. We are currently looking to expand on real estate.
However, as with the stock market, the housing market in my part of the country has been rising the last couple of years, so finding the property at the price we require is taking a bit more time. We take a disciplined approach to buying properties so we don’t overspend and ensure our desired ROI.
When the right opportunity comes along, we will pounce.
AZBruins says
very smart M15, i am in the same boat, i have some money saved up and planning to acquire another rental property, but the market price is way too high right now resulting in low cap, i think discipline is the key here, need to sit tight and just wait for the right deal, best of luck to you M15 !
FIRE Marshall says
We are increasing our RE holdings, but largely through passive investing in apartment buildings. This is 100% passive for me but provides cash flow with appreciation potential. We do hold a few SF rentals as well. Currently apartments are about 33% of our portfolio and residence/rentals are another 33%. The balance is company stock, retirement accounts, and cash.
ESI says
The reason I don’t have more RE is that I’m an idiot. Details:
https://esimoney.com/what-i-did-well-and-not-so-well-in-real-estate-investing/
ThomH says
Lol! You are certainly no idiot. I’ve yet to meet an idiot millionaire…A few crazy ones maybe!? My particular market is very tight at this time, but I’m bullish on RE and it provides such an opportunity few other tools provide for early FI. It’s the only reason why I haven’t bought more myself. Unfortunately, I’m the type who wants to be able to drive to my units, so it limits my options. I was curious if there were possibly other extenuating reasons you guys didn’t go larger. You both seem to fully grasp the opportunity of RE. Thanks for responding.
ESI says
I’m actually stockpiling cash now, waiting for the next downturn and ready to pounce. Time will tell whether or not we get another RE buying opportunity.
ThomH says
Make perfect sense. Hopefully another cycle comes through, in the meantime we’ll just enjoy this stock market ride! If you are ever in Virginia, the beer (or coffee if you prefer) is on me!
ESI says
What part of VA are you in?
ThomH says
Central Virginia, right at the foot of the Blue Ridge Mountains. Email me if you’re ever coming through. We can compare retiree notes over one of our great Virginia craft beers!
Jill says
Hello from Virginia too! I’m in southwest Virginia IN the Blue Ridge Mountains!
ESI says
Awesome! Love that state! So pretty!!!!
ThomH says
Jill, Great town! I grew up about 20 minutes west of Lynchburg, and now live about 20 minutes north. Great to see a fellow Virginian here!
Jill says
I’m not in Lynchburg, actually even farther southwest, in a small town called Galax.
ThomH says
Sorry Jill. Meant to say “Great state”. I was responding to your post while also responding below to ESI on Lynchburg! I should know better than to multi-task! Galax is a beautiful area!
ESI says
I’ll be in Lynchburg at the end of August but will be quite busy — but I should be back there now and then.
ThomH says
Email me if you have a few extra minutes when you are in Lynchburg! Would love to meet you and compare FI notes. I’m only 20 minutes from Lynchburg. Great college town!
gtmoney says
I think so many people are stock piling cash for RE investing opportunities or even first time buyers that it will be very interesting to see what the future holds. There is always a peak but how far will it drop? Baring other factors I think you will see a lot of peaks and drops as people buy into the market who have been sitting on cash.
ESI says
Maybe. But I have a couple markets I’m interested in (where my places are now as well as where I live), can move fast, know more than I did back in the day, and have a management firm looking out for before-market deals for me.
Time will tell…
Apex says
We will get another down turn in real estate eventually.
It’s hard to know when and how significant but a few things are true.
1. Valuation is still lower in nominal dollars than before the last crash.
2. Valuation is about 20% lower in inflation adjusted dollar than before the last crash.
3. Price to Rent Ratios are about 30% lower than before the last crash.
http://www.calculatedriskblog.com/2017/07/real-house-prices-and-price-to-rent.html
4. Supply is still constrained as building has not even picked up to the level of the bottom of most previous recessions let alone picked up to a typical recovery cycle or expansion phase. In the meantime, the past 9 years inventory has been under built to such an extreme that we have underbuilt housing more excessively in those 9 years than we overbuilt it the previous 9. You can see that in the chart linked below as average residential investment has been a little above 2% of GDP over the last 60 years, perhaps close to 2.25% of GDP. We were above that for about 9 years prior to the crash and peaked at 3.4%. We have now been below it for about 9 years with a trough at 0.6% and now back up to 1.4% But the area under the graph that is below 2.25% since the crash is more than twice as large as the area that was above it prior to the crash. Inventory is tight and not being replaced fast enough to keep up with demand and that is what is driving price increases. Not excessive borrowing and not uncredit worthy borrowers. It is simply not nearly enough supply to meet rising demand which is why inventory is at historical lows and prices keep rising.
https://4.bp.blogspot.com/-X6SDBHP4pEM/WYhujpp5mZI/AAAAAAAAr5k/xaFr9oFz4Ugw4ovHpMHbTl3skHZ6ORO8QCLcBGAs/s1600/RICompQ22017.PNG
5. Mortgage borrowing to sub-prime lenders and use of packaged derivatives and mortgage backed security products all rated AAA by S&P ratings firms is no where to be found so the market is not being flooded with poor credit borrowers ready to collapse at the first sign of trouble like it was just before the last crash.
6. Apartment building Cap Rates however are getting excessively low (meaning apartment values are getting excessively high) and Apartments are being built at a faster rate than single family housing in comparison to historical norms. So apartments seem to be on more precarious ground right now that single family homes, but still no prediction about timing can be made.
So with all those things being true it would seem that the odds are we go higher for a bit longer before a correction starts at least in single family housing.
Since the credit standards are much stronger than they were in the recent past, unless they loosen it significantly from here in a way that causes us to shoot significantly higher in the mean time, it seems that the odds are even higher that the down turn will be far less significant than the last time (again at least in single family housing).
Typical downturns in housing since WWII have looked more like pauses or very minor dips than downturns. It is only the last one that looked like a big correction. That is one reason why no one thought it could get that bad. That doesn’t preclude it happening again but with the new tighter lending policies, the Dodd/Frank banking regulations, and the underwriters still being somewhat leary of excessive real estate lending, it is difficult to make a case for a correction that would be comparable in scope to the last one without going quite a bit higher first.
As such it is difficult to make a strong case that the next correction in housing will actually be worth waiting for from here (at least in single family housing, perhaps apartments will be a different story).
If you want to see a bubble that may be forming, the auto companies appear to have looked at what the banks did with housing in the early 2000’s and decided that was a good way to sell a lot of stuff. In deed it was. Sub-prime borrowing in autos is now higher than it has ever been historically and auto company sales are at all time highs. It’s pretty amazing how well that formula works for selling a lot of stuff. Just give money to people who can’t afford it. Did the auto companies and lending institutions for autos not read to the end of the decade on housing in the 2000s? Don’t know exactly how the auto lending situation will end but I wouldn’t want to buy a packaged security of auto loans at the moment.
ESI says
1. I see you’ve become an economist in retirement. 馃槈
2. Do you think the above is true in all markets? The two markets I’m following seem to be in bubble-land…
Apex says
Nah. I have been pretending to be one of those even before retirement. HA!
No I don’t think that is true in all markets and you bring up a great point. As they say all real estate is local and what is true generally may be quite different in any given local market. There are markets like San Francisco which have been doing their own thing for many decades. Can’t ever compare that to the general US market.
Also since I know you are in Colorado, that market also sounds quite hot especially Denver which I understand is super hot and I certainly don’t have my finger on the pulse out there.
I would say the conditions described by the comments I made and the charts are likely fairly representative of most midwest markets which are the ones I have my finger on and I suspect the areas where you own your other properties in Michigan it is probably fairly representative. The low hanging fruit is long gone. It went away in about 2013 or shortly there after. But that doesn’t mean that kind of easy fruit shall soon return.
Apex says
One thing that occurred to me in thinking about your comment is that I believe your current properties are small apartments are they not? Are you looking to purchase similar type products. If so that could be part of why you feel things are bubbly. As I had mentioned, the cap rates on apartments are getting to rates that don’t make for good risk reward trade offs in my opinion. I looked at apartments about 3 years ago and didn’t like the cap rates. They have only gotten worse since then. So I won’t touch apartments in this market because they don’t meet my thresholds for cash flow safety and margin.
ESI says
Yes, you’re correct — I have small apartments and that’s what I’m looking for as well.
Things are crazy with them in both the markets I’m interested in.
Ashley Neal says
This post has inspired me to take action now! These numbers and the info shared in this post are very impressive. #ChangingMyLifeNow! I found your blog via Money Mow’s list of the ’30 Fastest Finance Blogs’… I thoroughly enjoyed reading this post. I learned so much. It’s unfortunate that they do not teach this stuff in school, but since they don’t I am going to continue learning, begin applying and teach my team of 4 kids how to live like this. For Christmas, I’m closing their savings accounts and putting all the money in an IRA for each of them. I am learning this info much later than I should have (34 years old) I don’t want to curse them in the same way.
ESI says
Good for you!
I started not too much earlier than you (I was in my late 20’s) so you certainly have plenty of time. And your kids have a TON of time!
Here are some books you should check out (if you don’t want to buy them, get them at the library):
https://esimoney.com/five-money-books-youll-ever-need/
Ashley Neal says
Thank you so much! I’m ordering them all now (actually I have a confession, I’ve had The Millionaire Next Door for years it’s on my book shelf collecting dust… shame on me and I have walked by The Richest Man in Babylon in the book store and library a countless number of times… hangs head in shame)… I am very grateful for finding your post even though I often write about personal finance (I know, I know I should be extra ashamed!) this blog post has lit the fire under my a$$ to stop researching, reading and writing about it and actually do more in my own life. Hopefully in the future I can be one of the Millionaire Interviews too …under an alias of course 馃槈
Matt says
#15- “I am just sad I don鈥檛 have access to it (401k) right now, because I would be fully retired if I could access it.”
Have you looked into Substantially Equal Periodic Payments and decided against them?
M15 says
Have spent a few hours reading about this. I did not know you could withdraw an amount yearly penalty free! Only thing is that some articles state that its under certain circumstances, but have not found a description of what those are. We could be drawing down around $40k a year. I will continue looking into this. I would love to hear from someone that is doing this.
AZBruins says
very smart M15, i am in the same boat, i have some money saved up and planning to acquire another rental property, but the market price is way too high right now resulting in low cap, i think discipline is the key here, need to sit tight and just wait for the right deal, best of luck to you M15 !