Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
My questions are in bold italics and his responses follow in black.
Let’s get started…
OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
27 years old. Never married.
Do you have kids/family (if so, how old are they)?
No kids. Very tight family.
What area of the country do you live in (and urban or rural)?
Urban area in Texas.
What is your current net worth?
$1.05M as of April 2020.
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
- Stocks (48% taxable non-retirement account, 17% Roth 401k, 23% Roth IRA, 12% Traditional IRA) – $430k
- Real Estate Syndication, asset-backed debt investments, small VC deals – $355k
- Rental property (Suburbs of a large city) – $215k (paid off mortgage after 2 years of initial purchase)
- Municipal Bonds – $44k (AA – AAA rated munis)
- Pension – $33k
- Cash & short term (3 mos – 1 yr) CDs – $27k
- RSUs – $0 (not assigning any value since some of the RSUs have not fully vested)
- Business – $0 (not assigning any value to a 1.5 year old blog)
Liabilities
- Line of credit – $54k (currently 2% interest rate as of 4/2020)
EARN
What is your job?
Engineer (Senior level) – primary job.
Multiple secondary gigs as a data science freelancer, math/science tutor, TA, etc.
What is your annual income?
$213k according to filed taxes.
Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?
Year/AGI:
- 2011: $7,738
- 2012: $41,158
- 2013: $34,299
- 2014: $91,451
- 2015: $121,275
- 2016: $131,133
- 2017: $146,281
- 2018: $239,206
- 2019: $212,929
I worked two jobs throughout college (excluding internships) and somehow also played on the college sports team. I majored in Engineering and maintained an excellent grade throughout.
I did have student loans my first year of college but I paid it off the following year in college with the jobs I had at that time. The rest of my college tuition was paid for through academic scholarships.
I graduated college in 2014, hence the income spike that year.
I switched companies in 2018 which saw a good increase in income that year (although the switch really was not due to the financial benefits even though that is an added plus).
Currently, one of my main focus is tax efficiency and I am curious how ESI readers have done so in their different situations.
What tips do you have for others who want to grow their career-related income?
I am not really sure I have any tips since I am relatively young and would rather have the ESI readers comment on what they think grows career-related income the fastest.
For me, personally, following my passions has proved to be all I have needed thus far.
What’s your work-life balance look like?
I probably have had too much energy the past couple of years and get quickly/easily motivated with most things. I am sure when I finally settle down with a family, I’ll be sure to adjust as needed but right now, it is really good because the people I care about the most (my parents and sibling) hear my voice everyday.
I also do most of the things you would expect from a 27 year old in this day and age (responsible or irresponsibly!).
Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?
Outside of my regular job, the rental brings in ~$14k after all expenses, taxes, repairs, etc. I do not have a mortgage so I do not pay interest on it. I also have each room rented out separately so I am able to get better rates as compared to renting out the entire house to one family.
I manage the entire thing myself including paying all utilities, fixing all issues, and I am able to lower the expenses for each line item in the expense bucket while still giving an excellent quality of living to the tenants.
I also maintain a good relationship with each tenant and that definitely helps out with the retention rate thus far.
I initially lived in the home till 2018 when I left my company at that time for a different company. Fortunately, my rent at the new location actually ended up being lower than each individual room that I rent out to each tenant.
I also have yearly dividends from stocks, CD interest, Muni payments, and quarterly real estate syndication payments.
Finally, I bring in about $25-30k from secondary gigs I perform throughout the year.
I am finishing up my graduate degree so I am able to apply the skills learned to the different gigs.
Some of the gigs are freelance programming, data science analysis for companies as well as tutoring kids of any age (including college kids) anything that has to do with science, math, or engineering. I love seeing the progression kids make and that is a huge bright spot which I thoroughly enjoy.
SAVE
What is your annual spending?
$30k.
What are the main categories (expenses) this spending breaks into?
- Property tax – $7,000 (yup…Texas)
- Food – $6,000
- Rent – $8,500
- Utilities for the rental property – $3,100
- Repairs for the rental property – $750
- Fuel – $750
The rest are insurance, travel, and other business fees.
I do not have income taxes here but that is my largest expense by far.
Any recommendations on how to lower income taxes while increasing wealth would be greatly appreciated. I would love to learn how folks on this site approach this.
Do you have a budget? If so, how do you implement it?
I do not have a budget but I have a general idea of historical expenses and like to stay within +/- 10% of that if possible. I do keep track of my spending on Personal Capital to flag any errors as quickly as possible.
What percentage of your gross income do you save and how has that changed over time?
85-90%.
It probably was much higher when I was in college since I really didn’t have that many expenses except food, tuition (covered with academic scholarships), and an extremely cheap rent (I lived in a small college town).
I never really bought books back in college as I mostly relied on the inter-webs.
What is your favorite thing to spend money on/your secret splurge?
I won’t say I have something I spend a lot of money on thus far but last year I probably traveled every month for either work, business, or personal. I also have lots of ways to travel at a discount and also some United credits I can make good use of.
My favorite thing to do activity-wise is playing soccer and that is not an expensive sport as long as you have your cleats, a soccer ball, and good friends who like to compete.
INVEST
What is your investment philosophy/plan?
As I am still relatively young, I want to be more aggressive (although I have too much bonds and CDs than I would like to).
Prior to 2018, I had 70% in stocks and the new capital since then have gone mostly to hard assets such as real estate.
Any allocation advice would be great!
What has been your best investment?
Investing a lot of time in educating myself about how things work as well as my education (sounds cliche but true).
What has been your worst investment?
A high yield dividend stock with too much debt…basically a terrible balance sheet. The company filed chapter 11 and I lost all my equity in that company. That was a good lesson. I will touch more on that later.
What’s been your overall return?
I am not entirely sure honestly as I really started keeping track of this stuff two years ago.
I think my company’s 401k match has been great as I have always maxed out my 401k and those are entirely in a S&P 500 ETF.
My retirement portfolio has tracked the S&P 500 since 2014.
The cash-on-cash return for the rental is about 8% using the purchase price when I bought it.
The CDs pay 2-3% interest.
The real estate syndication deal hasn’t been realized yet so I cannot comment on the performance but it has returned ~8% cash-on-cash returns so far. I have not had any major renovations thus far since I had it constructed from scratch.
The muni bonds have a 3.89% coupon rate but estimated yield is about 2.2% with a maturity of 20 years on average based on recent pricing 04/2020. The account value for munis has increased 7% since purchasing them a year ago. Fortunately, the munis are tax free.
How often do you monitor/review your portfolio?
I like to think about allocation and strategy and when I look at my portfolio weekly, this is what I have in mind for the most part.
Other than that, I typically track the transactions that flow through each account to make sure there aren’t any errors in sight.
I also appreciate the continued use of technology for security to protect accounts with a lot of flow.
NET WORTH
How did you accumulate your net worth?
I grew my financial net worth through all three ways (earned, saved, and invested).
In a nutshell, I majored in a high-paying field and got a really good job out of college.
I performed well at work and also got really good yearly bonuses to go with a high salary. The yearly bonuses went directly into investments as soon as I got them.
My company also has a really good 401k match of 9% which I do not factor into my AGI.
I have also had at least two side hustles throughout the same period which tend to be higher-paying side hustles as they require technical skills as well.
Savings-wise, I have saved at least 85% and as much as my primary job’s salary (since I can easily live off my secondary gigs).
Investment-wise, my portfolio has mirrored the performance of IVV (I also have large stock holdings in AAPL and MSFT separately) and 8% yielding real estate investments.
My home has appreciated by 22% total return (not annualized) over the past 5 years of purchasing it but I have not realized those gains and I do not plan to any time in the near future since I believe in the location and I am content with a 8% annual cash-on-cash return.
So, I think it has been a combination of all 3 so far but saving comes the easiest.
I have not inherited anything and I hope I don’t have to for at least for the next 30 years so I can spend more time with my parents. If I do inherit something at that time, I will simply try to build it and pass it on to the next generation and I am sure my brother will as well.
What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?
Probably saving since I can easily save at least 85% of my AGI without even thinking about it and I haven’t noticed any lifestyle creep yet.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
Fortunately, I have not had anything majorly significant derail me except maybe missing a lay-up in basketball practice!
I did have a company stock I bought years ago file chapter 11 and emerged from it with all my equity in there wiped out but I actually do appreciate that it did because it inspired me to learn how to breakdown a balance sheet and I have been paying a lot of attention to that ever since then.
Other than that, I am a black male immigrant who came to the US 10 years ago with $0 in financial net worth so everything has been a trend up even with the ups and downs but I do appreciate the downs because I draw a lot of strength from that.
What are you currently doing to maintain/grow your net worth?
Any advice on growing net worth would be appreciated. I am more interested in learning from the folks on this board.
Currently, to maintain/grow my net worth, I have shifted focus to real estate syndication deals. I am thinking of maybe purchasing another property but I am not sure I would want to manage it myself due to having to keep up with tenants. I can do it but I feel my time could be used elsewhere but that is something I am trying to figure out.
Do you have a target net worth you are trying to attain?
I honestly don’t know what my target should be because of the long time horizon.
It is much easier to set a target for the next two years and I would say my goal is to get my investment cash flow to be a much more substantial portion of my monthly cash flow while still increasing my W-2 income as well of course. 🙂
How old were you when you made your first million and have you had any significant behavior shifts since then?
27 years old and nothing has really changed when it comes to my behavioral shifts.
I am still the same person (with the same character/mindset) as I was 10 years ago when I stepped foot into the US.
I recently bought a new car after driving the same car for 10 years so that might be a huge change, although… it was still a Toyota model as my entire family all have Toyotas.
What money mistakes have you made along the way that others can learn from?
Ah yes, evaluate the balance sheet of a company (either public or private) before investing in it.
I got sucked into high dividend yielding securities without researching how the dividends were paid out (through retained earnings or by taking on more debt).
I also did not place enough emphasis on growth industries as I should have.
Make sure you learn as much as you can so you can make an informed decision. Think about the risks, up-side, and down-side for each investment you make.
What advice do you have for ESI Money readers on how to become wealthy?
I am in no position to give advice on this and would rather have the other millionaires on this blog chime in!
The only advice I can offer is to believe in yourself. Work hard, follow your passion as that will drive you more than you can ever imagine, and most importantly, be a very kind and polite human. Things will fall into place with time.
You can also bounce off ideas or strategies with the people closest to you as they might sometimes have a point of view that needs to be considered before taking action.
FUTURE
What are your plans for the future regarding lifestyle?
At this point, I do not think I will be retiring early as I do enjoy my job. My guess will be to realize my potential in the future.
I would love to build and scale a business as that sounds like a lot of fun and I wonder how/when entrepreneurs decide what point a small gig or business idea becomes a good candidate for scalability.
What are your retirement plans?
Oh dang, tough question haha hopefully I can still be playing soccer when I am much older. It’s going to be a tough task but we will see.
Financially, my plan is to keep growing the retirement accounts by maxing out my Roth 401k every year and also taking advantage of the generous contributions made by my employer.
I do not really see myself retiring early but being FI would be great especially due to the peace of mind it offers.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
No main issues but I can see healthcare costs being one.
I have read a lot about the high cost of healthcare but I have not personally experienced it due since my company pays a good share of the cost. I have also not had any health scares so far but God-willing, hopefully I do not have one in the near future.
To help reduce the risk of health issues, I typically try to eat right and work-out quite a bit but again, you never know what would happen in life.
MISCELLANEOUS
How did you learn about finances and at what age did it “click”?
My dad bought me $250 worth of shares in 2010. Ever since then, I have had to pay attention because I always wondered why he bought that specific company and how everything worked it general. I finally sold those shares in 2019.
I also had to go through the burden of applying for a bunch of scholarships when I was a freshman because I did not want any of my parents taking a loan in their names and I also did not like the idea of debt at all back then. I have softened up to debt as there are scenarios where one could have good debt and using leverage can be a powerful tool if used correctly.
Going forward, one of my main goals is to use some leverage to boost returns during a low interest rate period.
Who inspired you to excel in life? Who are your heroes?
My parents. They are really good people. Both are very hard-working.
My dad works as a nurse and is very passionate about the health of people around him. He started off in a different industry when he graduated college but had to pivot when he moved to the US. The career change ended up being a smart decision because he fell in love with his current career.
My mother was a professor in the education industry (now retired) and I remember seeing her reading books or doing research at night so that has always stuck out to me as a good example for hard work.
My brother also is an extremely smart individual in the Tech space and I like to pick his brain every now and then. We used to be pretty competitive back in the day but these days, we serve as inspirations for each other which has been mutually beneficial.
Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?
I actually don’t like reading books with more than 5 pages…I know it’s weird but I can’t read every single word!
But I do enjoy listening to a good podcast or reading blogs such as this one.
I do draw inspiration listening to stories about folks like Elon Musk, Steve Jobs, Aliko Dangote, and Robert Smith among other entrepreneurs.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
I do give financially to the Arc Westchester Foundation. It is a foundation for people with intellectual and development disabilities.
I also do a lot of volunteering throughout the year with United Way with my focus being to help people in the inner city that do not have the opportunities most take for granted.
I have seen firsthand how the lack of opportunities in life can limit one’s potential and one of my missions in life is to prevent that from occurring to those I come across through education, mentoring, being a confidant, and running my blog.
Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?
I definitely will be leaving what I have for my heirs.
I hope to be one of their many inspirations in life and will be passing on the baton to them when my time comes. My vision for them is they can use this as the seed to create generational wealth.
Wow, killing it at 27, congrats! At your trajectory I don’t think you need much advice, just keep doing what you’re doing.
Thanks Dave! I’ll keep at it 🙂
Just an insanely good job or earning, saving and investing. Amazing work and at age 27!
My only advice would be to start spending some money on experiences, travel. Loosen up a bit. You are off to such a good start and are clearly so motivated that you have almost won the long game already at age 27. Live a little more now. You will never get back the years in your 20’s and 30’s no matter how big a pile of money you build.
As I read this entire post all I could think was Holy Cr$p, Holy Cr$p…. 🙂
Haha, I know – I still can’t fully wrap my head around everything. I think I just got sucked in and wasn’t stepping back to soak in the moment.
I absolutely agree on spending more time on experiences! My parents, sibling, and myself were actually going to travel to London to visit my twin (newly born) cousins this summer but the pandemic threw out that plan but hopefully we get to next year.
On another note – are there any places you would recommend visiting? both within the states and outside. I haven’t really been to the East coast except for a grad visit one time.
Great job, one advise for you. Prenup if you ever get married.
@Hospitalist – thanks for the advice! It is disheartening the statistics behind divorce rates.
It is something that I battle with internally as I can understand the effect of asking for one sometimes might not be taken very well. Any tips? I am not well versed on the rules governing prenups and premarital assets as I understand it varies by state. I did get close to being engaged once a few years back and it was difficult just thinking through it.
it’s a long video, 30 mins, but i highly recommend you to watch the whole thing, then you’ll learn the importance of having a prenup. Good Luck!
https://www.youtube.com/watch?v=mPOdN1F8UCg
Jason
https://esimoney.com/millionaire-interview-77/
Thanks Mi-77!
I did watch every second and also read your blog post. I have read your post before today and it was indeed inspiring especially the entrepreneurial capacity you do have! Seems like you were just around my age when you decided to venture out on your own? What inspired you at that time to try it out? and I do like the black T-shirts analogy haha
As for a prenup, I do agree given the stats behind it and my plan when I do get married in the future will be to have one as it does protect both sides and clears things up. Hopefully, I never actually get divorced but you never know!
i figured i had to become a entrepreneur since i was terrible at keeping a job..haha.. yeah, choosing the right person to marry and having a iron clan prenup is likely the 2 most important things in your life. And if for some reason, your partner does not want to sign, that kind of tell you something about this person… Best of luck man!
https://esimoney.com/millionaire-interview-77/
Haha I see. Based on your interview, I would say that was a pretty good move! And sounds good, based on this blog post, I did get really good advice that I haven’t thought through yet and this is one of them!
good job! Your family must be very supportive if you’re able to go this far at such a young age
They are really supportive! I am 100% sure (if I didn’t have their support or just words of encouragement), I wouldn’t be where I am today. There have been times when I would almost make the wrong mistake and they were able to provide their thoughts and they were much needed thoughts! I probably should have given them more of the glory in the interview because I would not be here without them.
Awesome job on the savings rate. I wish there were more stories of higher savings rate than just earning more.
I can only talk about the real estate activities.
I suggest you take some of your real estate funds and buy some value add properties under market value. You can increase your net worth 20k + the moment you close.
This is 20% + return right there. Go get a mortgage later and you are talking 100% to ∞
If you don’t want to take on the extra work then find a property manager and you would only lose a few % of returns.
I own a lot of doors and have tried to find a FAIR syndication for two years. Just cant find them. To me a syndication should find DEALS at a scale that I cannot do on my own.
If the return you are offered is 8% then they are not findings deals, they are just placing money IMO
Coming out of the 2008 housing crash, residential real estate returns were great. Savvy investors saw the potential and kept running with it. If you want to take it to scale you have to move towards large multi-family. That is where the big money eventually went. And it kept going, and going, and going, until there was no meat left on the bone in multi-family. The cap rates people were willing to pay to put their money in multi-family real estate began to make little sense. With no meat on the bone, syndicators can’t offer returns that are attractive because so much money is satisified to take unattractive returns just to get in on the action. I explored multi-family in the 2013-2015 time frame but stopped even considering it about 5 years ago due to the returns and it has only gotten worse.
It’s hard to say exactly where things go from here. If I had to guess I would say COVID will likely have the following kinds of effects:
1. Commerical real estate will be negatively impacted, perhaps significantly so.
a. Work from home is likely never fully going away … less office space needed.
b. Unemployement will be elevated for years … less office space needed.
c. More retail will go bankrupt and move online … less retail space needed.
2. Residential will have a pause, perhaps slight downturn, but not signficantly so.
a. 2 months into lock down, rent payments are only very slightly down from a year ago regardless of media hype and headlines that are very misleading and do not tell an accurate picture.
b. Quarantine is making the home the castle. It’s everything now. It’s home, it’s work, it’s school, it’s leisure. People are not going to be doubling up and combining living spaces like they did after 2008 unless they have no choice. In fact if the quarters are too tight people may want to expand into more space. At least as much living space will be needed.
c. The number of people who need housing continues to grow every year. The largest demographic is no longer the baby boomers. 25-29 is by far the largest 5 year age group followed by 30-34, and 20-24. These are primary new housing needs households. At least as much living space will be needed.
d. We are still under supplied in housing units as the number of units available for sale and rent prior to COVID was still historically low. Supply of living space will be constrained.
e. Existing residential construction is mostly being completed. However, nearly all new residential construction projects have been put on hold. This will exacerbate the housing shortage. Supply of living space will be further constrained.
f. Some people will be unable to pay their bills and some additional properties will go into foreclosure. This will have a short term depressive effect on pricing, holding increases down to very little and perhaps even a period of falling prices in this space, but likely not a significant effect on rents although those could drop some too. This will be very small in size compared to 2008 because the units are in much stronger hands. Thus these effects will be short lived and once through them the supply gap caused by halting construction of new residential and pent up demand from people putting house plans on hold has the potential to create a price squeeze eventually driving prices and rents higher, but that is a bit more speculative as it depends on the economy getting back on to some reasonable footing eventually. This would all be a few years out.
That is all worth exactly what you paid for you it. 🙂
What do you think about the impact on housing purchased (at least in part) where the owner needs some sort of income from it to make it work?
Specifically, I’ve seen some pieces on people who bought homes banking on Airbnb income. Now that that income is gone (or dramatically reduced) and it appears it won’t bounce back any time soon (and probably not at the level it was before), they are considering selling (likely at distressed prices).
Obviously this would hit certain places harder than others — just wondering what your take on this is…
Great question.
I totally skipped over that section. The most important rule in real estate is that all real estate is local. Some local markets may be impacted greatly.
First as a little commentary on your first sentence. Nearly all real estate needs some income from it to make it work including long term rentals. If rent payments are zero or 10% or 30% then most owners will be in trouble. I think what you are trying to focus on is basically individual owners who decided to compete with Hilton and get into the hospitality industry via Airbnb, VRBO, etc which is what you mentioned. These owners need new customers weekly. Frankly I barely consider shore term rentals to be real estate. It’s a business. The hospitality business. And it requires daily operations and demand for their product to succeed. However it does have the ability to affect real estate if their inventory gets dumped back onto the real estate market.
As bad as I think commercial is, hospitality is even worse right now. However I think commercial real estate’s problems are very long term and will not go away when COVID does. Hospitality and travel will mostly come back on the other side of this for those who can survive it, although it will be delayed as a few people get the ickies and the scaries about the idea of being in a place that others who might be “infected with the plague” have recently been in. There is a segment of the population for which this feeling is real and will over-ride what they can do or what people might tell them is safe to do.
However, I do think for most people this will fade relatively quickly. I base this partially on what I have already been witnessing locally here in Minnesota which is not representative of the entire country but is probably representative of most places not on the coasts. What I have seen here once the weather got nice a couple weeks ago was that the stores were packed. PACKED! I saw parking lots more full than I have ever seen them in 10 years. People were tired of being stuck inside and they were out mingling with others mostly wearing their masks. It should be noted we are still in lock down. Very little has been opened here in MN that is not “essential” but people were out and not worried about it.
Then his weekend the weather was not as nice so not as many people were out but I noticed something curious. Less people were wearing masks. Again this is all local and anecdotal but it feels like people are getting less scared, less concerned, more focused on their own lives and they are willing to take more “risk” at least with respect to recommended guidelines, under scenarios that they feel aren’t “that risky.”
So with respect to your question what will qualify as “pretty risky” vs “not that risky” that people will be willing to do. Because this is America, and unless the plague is raging outside your door people are not going to stay locked in their houses for 6 months. A drastic surge and runaway cases would change everything, but if that doesn’t happen people are going to slowly dip their toes back in the water. I would say what people will consider pretty risky that they are not going to do is get on a plane and fly to a massive leisure destination like Disney Land (if they open again), etc. So places like Las Vegas, Orlando Florida, etc are in big trouble for some time. People who have leveraged vacation rentals in those markets may not be able to hold on long enough to wait this out. That could have a big impact on housing in those markets. So if you are in a leisure hot spot destination, especially if it is a spot that draws people on airplanes for things that involve collecting in large masses of people then those residential markets are at big risk. Hotels in those markets are also in big trouble.
So what about things that people think aren’t “that risky.” I think drive to destinations will be the new leisure activity for the foreseeable future. For example here in MN people drive north to lake country during the weekends from May – September. Again, barring major outbreaks that just shut everything down I expect that market to do just fine. It might have stronger demand than usual as people who usually fly to major destinations replace that with drive to destinations. So those people with drive to destinations might just need to hold on a little while and could do just fine, some even might thrive.
Again all of this is dependent upon things not get significantly worse such that politicians lock things down tighter yet or people get more scared because they do feel that the plague actually awaits them right outside their front door.
Lets hope we don’t get there.
I think we agree on what’s likely to happen.
I do believe that people will return to spending in full force, but only for some items.
TVs, phones, etc. will probably be as good or even better than they were before the virus hit.
I think hospitality/travel will be hit hard and not return for a long, long time. Part of this is likely what Buffett was thinking when he dumped the airline stocks.
Part of the reason for a long-term issue is the “plague” factor you mention above, but I also think that many people have gotten a shock about how fragile their finances are. So many have lost jobs and now realize they are so very close to money trouble without those jobs. I think a subset of these people (probably a small one given American’s tendencies to forget bad times and spend like there’s no tomorrow) will tighten up on spending. They will still buy their phones, etc., but big discretionary expenses like an expensive trip will get cut (they will drive instead, I believe, like you say).
In addition, there’s going to be a good number of people who lost jobs and don’t get them back. Companies will be smaller (or even go away — some retailers, theater chains, and a few others appear to be on the cusp now) and need fewer employees. So some won’t have jobs and will be forced to cut back. And travel is certainly a large, discretionary expense which can be cut in times of trouble.
So if you own a home and either use it part time yourself or rent it out as an Airbnb full time and you HAVE to have that income to make the financials work, you’re likely in trouble. If you can’t hold on you will be forced to sell. And if there are enough of these situations out there, prices will drop dramatically.
This has been on my mind for a few reasons. First, we watch House Hunters and so many people buying a place in a resort area talk about how they “need” to rent it out at least part time to make the money work. Second, as we look to spend next winter somewhere warm (probably Florida) I’m thinking that Airbnb rates will be very aggressive (low) as folks compete with each other for the reduced number of visitors. Third, if we find an area we like and prices decline enough, we might consider purchasing a second home.
This is an interesting article showing some indication that supply of housing has dropped from already low levels but demand is already coming back.
It’s just one example in the Atlanta market, but I did find it surprising to be happening this quickly. I think things would need to get quite a bit worse before there was more than a minor impact on housing in general with the exception of some of the local at risk markets already mentioned.
As a side note I was in the process of trying to buy a house a few weeks ago. It was only on the market a few days and it resulted in a bidding war.
https://www.cnbc.com/2020/05/11/coronavirus-as-states-reopen-homebuyers-rush-back-out.html
I suspect things here in CO will bounce back quickly.
Just not so sure about vacation locations with lots of owners needing Airbnb funds to stay afloat. (if that’s a thing — it may not be)
Just found this:
https://www.marketwatch.com/story/vacation-real-estate-markets-are-toast-because-of-the-pandemic-as-airbnb-owners-rush-to-offload-their-homes-redfin-ceo-says-2020-05-11?mod=home-page
Key exchange:
MW: What’s your take on the state of secondary markets and vacation markets right now?
Kelman: Toast. Those are going to be in tough shape. There’s a whole economy that was built around the liquidity there that Airbnb provided. You could get pretty deep into debt and still have somebody pay your mortgage every month because Airbnb and other travel websites were so good at finding someone to rent it out. And I don’t think many of those folks have the reserves that Marriott or that Hilton does.
Investors who own Airbnb properties are looking for immediate liquidity. At some level it’s Redfin, Zillow, and Opendoor picking up where Airbnb left off. If they can’t get cash flow through one website, they’ve got to sell it through the other.
Very interesting conversations!
@MI 162 – would you say real estate syndication could possibly provide the same tax benefits as owning a property outright?
Also, to clarify – the 8% is the cash-on-cash but including the sale, most of them are projecting 17-23% IRR but it’s not yet realized so i’m not sure what the final return would be. They are levered so that’s a bummer since you mentioned that you would expect better returns than that!
@Apex and @ESI – what do you think of self-storage and manufactured homes syndications? I have the opportunity to get into one right now as well as a new construction in Boston and another in DC. All the returns/multiples look very similar but the Boston/DC are apartments while self-storage/manufactured homes is a fund covering most of the western states except CA and NM.
I don’t have experience in either of those categories but self storage seems to be an increasingly sought after area. I don’t know how to assess its sustainability.
Are you finding individual syndicators who have regulation D offerings to solicit funds or are you using crowd funding or some other means of connecting with syndicators?
It has been through Reg D offerings. I have however participated in Reg A offerings in the past and also invested in the pre-IPO for that same company at that same time but looking at the amount I have – I probably have 70% allocated towards Reg D
My take on self storage:
https://esimoney.com/five-reasons-you-should-invest-in-storage-units-and-three-ways-to-do-so/
Thanks ESI!
I did read through it and it was a good one! I think i’m going to go ahead and get in on the self-storage syndication.
Just found this today:
https://www.theatlantic.com/ideas/archive/2020/05/james-fallows-flying-will-never-be-same/611413/
As bad as it is for airlines I wonder how any cruise line can survive this? How could cruise volume return to anything but a fraction of what it was? People will need to travel again. Air travel is still the only reasonable means to travel long distances. No one needs to get on what for many has turned into a floating multi-week prison where there is no way off and when people got sick they either quarantined the entire boat for weeks or took them off them boat and quarantined them in some warehouse type makeshift facility for weeks. And it happened to dozens of ships. There are currently over 40 different cruise ships with confirmed cases on board the boat. The crew have it even worse.
Thousands are still to this day imprisoned on their cruise ships in dock. They are often from many different countries and the cruise lines will not pay to repatriate them and some countries don’t make it easy to get back home. What will it take to get all the gears in that machine working again?
Each person will have their own feelings about COVID. I am personally not afraid of COVID at all. I would get on a plane today if there was a decent place to go that wasn’t shut down. I have been on 2 cruises. After I have seen how this was handled by countries and cruise lines, and what a prison cruise ships can become, I am not sure I would ever want to get on one again. Not because of something like COVID, but because of what I now see as the complete lack of options if anything happens, medical or otherwise. Maybe I am wrong and cruise customers will come flocking back, but as for me ….. LAND HO!
https://en.wikipedia.org/wiki/COVID-19_pandemic_on_cruise_ships
That Atlantic article links to another one about air travel these days. As bad as it was in the past (it was always the worst part of any vacation for me), it’s even worse now (cranky co-travelers are the main reason.)
Personally, we probably won’t go anywhere for a long time that we have to fly to — we’ll simply drive. That’s another perk of being retired, we can “afford” to take three days to drive somewhere across the country if we want to.
Great job! And not even 30 yet!
Could he share with us how he landed those freelance programming gigs and what real estate syndication he is a part of?
Awesome job. For the next few years, given all that’s going on, I think you’re fine with the amount of cash/CDs you have. Of course, if a good opportunity arises, pounce.
I would also like to hear about the programming/data science side hustle. I also have skills in that area and would love to hear how you got that part started/find work/etc.
Thanks Max and JimE!
Sure thing – so when I started out, I was using Upwork but then did some work for a start-up and they kept on using me since they liked the work. They even had me create a recession prediction model! you can bet CoronaVirus was not one of the variables July 2019. I was hired on with the start-up as an independent contractor and worked a little for them before the pandemic. I haven’t heard much from them since but definitely can see how it does affect those businesses. The other work i’ve done were through tutoring a client and he has a shipping business and needed some work done so he decided to bring me on and had me do a couple of projects for him including mapping out some stuff.
As far as the RE syndication – I just googled RE syndication online and crowd-street and some other ones popped up. Some also contacted me and we spoke for hours on the phone just to get to know them and they also getting to know me. i’m a part of about 6 different funds spanning different types but i’m relatively new to most of them except one of them which I have been with for a really long time now.
Thanks for sharing the details
If you don’t mind me asking, which RE syndication did you go with? Did you find platforms only open to accredited investors such as CrowdStreet to be better than FundRise?
Ha, interesting question. So i’ve used both and I have also used Streitwise quite a bit as well. I’m not 100% sure which is best but I would say Crowdstreet/Real Crowd is more of a marketplace where you can pick and choose which deal you want in on. They’ve had and continue to have quite a bit of deals on there and I am only invested in like 3 through those sites since some deals didn’t meet my criteria but criterias are really subjective. I do like the site though and would recommend. Fundrise is great because it offers non-accredited investors an opportunity to get a piece of the action without having to deal with all the hassles of owning a rental property since repairs can be a little annoying sometimes especially when you have something else going on that needs your attention. Fundrise mentions that they are invested in a lot of homes to “diversify.” I’m not exactly sure how levered Fundrise is (I’ve never asked them but seems like something I should) but it’s easy to get that information with the deals on Crowdstreet. I think they are all pretty good but honestly we’ll see what the returns are at the end of the day. They probably aren’t as good as just doing it all yourself but that’s a personal decision.
So I actually just contacted Fundrise and this is what they said “Our equity ownership positions in rental apartments are relatively low-leveraged with fixed-rate loans. The average loan-to-value (LTV) on these assets is approximately 60%. The portfolio of senior loans, both acquisition and construction loans, are held on the balance sheet with no additional leverage and are secured by the underlying property. In virtually every case, these assets are located in urban infill locations. Properties that are either currently under development or expected to begin development soon represent 12% of the total portfolio and are owned without any senior debt. Finally, commercial and mixed-use real estate makes up only 6% of the total portfolio and is moderately leveraged with an average of loan-to-value (LTV) of 50 – 55%.”
Great job young man. You’re doing excellent! For tax purposes real estate is the only way to really get ahead, but if you just continue to consistently putting money into S&P funds without selling you can save taxes and become very wealthy. In real estate it’s all about location(safe growing cities, good schools, etc) wait for a great buy, you make all your money on the buy. Single family tend to give a better increase in value vs small commercial or multi family. If you get 10-20 of these you’ll be in good shape. If you’re handy, this a great income producing hobby. Best of luck!
Thanks Jim!
Great advice – I truly do appreciate it. I can see how single family can produce high returns during a sale but I am also worried about the downside of managing them. I only manage one single family right now but I am open to managing more. I’ve been looking at places in Texas on Zillow weekly and have been getting a feel on what kind of mortgage rate I would get during this period. Any tips on what to watch out for while making a purchase or how to simplify or automate the daily operations on a property?
When I first saw “age: 27” I thought holy crud, this kid must have inherited $$ or worked for a unicorn startup. Reading his story was very inspiring! Love it when a hyper intelligent, hard working young man does well. This is the classic immigrant tale and is what makes America great. Bravo!
Thanks Ken for the encouraging words!
It has been a journey so far but hopefully the journey just started! I do wish I inherited some $$ though 🙂 My sibling is the one on a chase for a unicorn startup, hopefully it comes for him!
Great job MI 186! You are doing spectacularly well! I’m also impressed by the incredible appreciation, love and respect that you have towards your family. I think it’s very telling that you are so inquisitive and wanting to learn everything you can. Keep on doing what you’re doing and you’ll be a multimillionaire very quickly. As someone in the comments already mentioned, take a bit of your time and profits and enjoy the journey. I trust you have the good judgement to loosen the purse strings a bit, but still keep saving and investing. Also, as others have already said, you need a prenup. Be very choosy about who you marry because the wrong spouse can destroy, or at least temporarily flatten, the trajectory of even the best investor. You are a great catch and I don’t want you to get taken advantage of. You have an incredible future ahead of you!
Thanks RocDoc! Keep on rocking on! I do appreciate my family being there for me as well especially when I need them the most. I’m starting to learn to enjoy the finer things in life. And I will heed your advice on the prenup. I can see it having a huge impact not just financially but mentally! Thank you again for the comment and I hope you had a good week 🙂
Nice work! Don’t see how you are able to save 85-90% of gross income when your federal taxes are going to be at least 30% for that AGI tax bracket…and that hasn’t accounted for the 30k of annual spending too. Perhaps you meant net income?
Thanks M!
My effective tax rate ended up being 23% and you are correct that the savings rate calculation is based on my net income. My net income as defined here is income after pay check tax withholding and doesn’t include company match on retirement contributions (both 401k and HSA matches) but does include yearly property taxes. I have it calculated that way because it’s what comes from Personal Capital and I have the numbers automated in a way that it calculates for quick viewing monthly. It also helps out that Texas doesn’t have a state income tax. Hope that helps
You found the secret early – Find your passion and Work hard. Let up a little and LIVE. Buying a new car is a start. If you get marry do a prenup.
Thanks for the kind words Mel!
I do agree and have been spending a little more than i’m used to fortunately. Buying the new car was a struggle at first due to the attachment to the old one and I was sad to see it go but I was able to fully convince myself to do so and the new one has been really great so far! I definitely appreciate all the tech features in the newer models and makes for a great ride. Any ideas on an easy way to bring a prenup discussion up without it seeming entitled?
I believe you should look for someone with the same qualities as you have: hard working, self sufficient, knows the value of a dollar. From experience, I know you should expect that person to be the same after marriage as before. So, if your parents and brother do not like her, WATCH OUT! Since you have a close relationship with them, someone they “click” with should be a good long term bet.
Since I am close to retirement age, please help me out and have lots of kids!
Seriously, all the best to you.
Thank you Refugee from Academia – I like the name!
I’m sure my family will let me know their thoughts as they have over the past couple of years (maybe too much lol). And I do second you on the characteristics and will pay attention to it!
Good that your family are open on sharing their thoughts on your future partners! Like Refugee from Academia says, if your parents and brother don’t approve, move on.
Great job young man! Haha I’m not that old. But seriously nice work. You are reducing your income taxes greatly just by living in Texas, no state income tax.
I haven’t vetted all your numbers but man that savings is high given your income. Nicely done.
Keep it up stay within your means, let life grow a bit as you make more but keep the savings going.
Thanks gtmoney! You might be missing an “e” between the g and the t except if it’s Georgia Tech then I made a failed intro.
It is true that Texas does have a generous income tax policy. I always wonder how people make it work easily in states like California although I would say the weather there is pretty nice compared to Texas!
Thanks for the advice – truly do appreciate it 🙂
wow, wow, wow…incredible. 27? Excellent work.
Yessir. Thanks Evan!
Wow, great job! I am curious to know about your blog site?
Hi Maithe!
If you click on my name “MI 186” – it should take you directly to the blog! I typically write about any current events in the finance world with some twists to them, personal investments and “why” I chose them. I also write about my personal journey and goals on there as well! Would be glad if you checked it out 🙂 feel free to comment as well!
Good story! Another fellow engineer! we seem to be over represented here.
My advice – keep it up, don’t change much
Keep doing exactly what you are doing for as long as you can and maximize gains while you have the gas in the tank to do it and no impediments. Eventually, a wife, kids and other things will slow you down a bit – best to make as much now as you can and lock in those big gains.
Do not get spooked by market downturns, they will happen many times over the course of your investing life. Capitalize on this when you can, but don’t spend too much energy trying to time the market – that rarely works.
Set some goals for yourself “My goal is to have $X, and when I reach $X, I want to do Y. Solving for X and Y is something folks often fail to do and they just get into a routine of earning and saving with no end. In may case I solved for X a long time time ago, but now that I have hit that number, I realize i didn’t spend that much time thinking about solving for Y. It would have been better if I had spend more time thinking about and planning for what Y should be in my earlier years.
Good Luck!
Thanks MI-94!
Haha, I could tell when I saw the $X – $X targets in your comments!!
This downturn (although it was pretty quick) was a good stress test for my portfolio. Fortunately my net worth has increased from its pre-Covid peak due to dollar cost averaging into stocks like Tesla and the QQQs through the bottom and slightly above the bottom during the drop. I also increased my 401k contributions during the drop in March and April so i’ll probably max that out in October. I would say, it was a very interesting period! Reminds me of the first time I bought Facebook in 2018 during the Cambridge Analytica scandal. Pretty cool to see Fb stock is flirting with all time highs these days with all the moves that organization is making.
And one thing that has helped me out is that I actually went through a much longer downturn in my industry in 2014-2016 so the learnings during that period helped a bunch!
And i’ll try the goal calculation tip 🙂
You can read my solving for X methodology in my MI-94 interview, but it’s pretty simple. Basically 4% rule, and an assumption you will pay taxes on the money from your investment withdrawals.
Size of investment pile needed = [Desired annual spending ÷ (1 – tax rate on income) ] / 0.04
I keep an excel file where I track total invest pile size year over year, chart it and compare that chart against the goal amount.
Experiencing a few good downturns early in life is a good thing. Keeps you realistic. Although your NW may be good and climbing you are always aware of how much you could lose. As part of my giant excel file I keep track of NW at the start of each year along with the increase/decrease from the previous year. With this, your best year ever and worst year jump out at you and you can forecast both how good it could be and how bad it may go in the future based on current NW numbers.
I hit my goal number in Jan this year. Based on past downturns it did not feel real, this feeling was proven correct. Post Covid downturn set me back a bit.
Below are my numbers extracted from excel. Suggest you do some tracking in quicken/excel. Gives you a great handle on what’s going on, your trends and plus as an engineer – what is more fun than excel?
% Increase Stats/year
(Projected loss/gain if repeated)
Worst -21% $(685,628)
Best 26% $852,897
Average 11.8% $388,224
Years till goal
Date at Goal
Best Return, 27.0% 0.3 10/1/20
Average Return, 11.8% 0.7 2/8/21
75% of Avg, 8.8% 0.9 4/28/21
50% of Avg, 5.9% 1.3 10/4/21
25% of Avg, 2.9% 2.6 1/24/23
2007: NW = $800,267, Delta = %19.0
2008: NW = $873,110, Delta = %9.1
2009: NW = $691,535, Delta = -%20.8
2010: NW = $870,435, Delta = %25.9
2011: NW = $1,016,340, Delta = %16.8
2012: NW = $1,107,453, Delta = %9.0
2013: NW = $1,264,615, Delta = %14.2
2014: NW = $1,571,431, Delta = %24.3
2015: NW = $1,784,176, Delta = %13.5
2016: NW = $1,623,588, Delta = -%9.0
2017: NW = $1,990,473, Delta = %22.6
2018: NW = $2,333,604, Delta = %17.2
2019: NW = $2,519,166, Delta = %8.0
2020: NW = $3,199,229, Delta = %27.0
Jan 2020: NW = $3,296,876, Delta = %3.1
May 2020: NW = $3,051,571, Delta = -%4.6
Ha! So I went ahead and did the calculation but I am still figuring out what my desired annual spending is. Hopefully, I know that with time. It’s pretty cool that you have been able to track your net worth for 13 years now! I think I was at $0 in 2009 haha. If you don’t mind me asking, what happened in 2016? I don’t remember it being a bad year
Regarding figuring out your desired annual spending. Simple solution – Just keep track of your annual spending (or monthly if you want an answer quicker). Know how much you spend now. You know how your life today resulting from that spending and then you compare life today to what you would feel comfortable with in the future. Once you know how much you are spending on average you will have a good feel for what is the right amount of many to plan on. Is the life you are living now on $X/month satisfactory? In the future will $X be more or less or just right? In my case we are spending around $100k per year and life is totally satisfactory, we could easily get by on less. We spend about $20k per year on teenage kids expenses that will theoretically go away when the kids are out of the house in a few years. A small bonus, but will likely later get spent on increase healthcare costs for us as we get old and fall apart : )
Regarding my negative 2016 returns. What I do to keep things simple is I record the value of the entire investment pile on Jan 1 each year. I have chosen to define the “investment pile” as all equities, cash on hand and retirement accounts. I exclude house value and the value of vehicles or any other stuff we own of value (not much really). 2015/16 was a spectacular year for our house remodel contractor. Several $100k of our investment pile was transferred to him to provide my wife her dream kitchen. As a result on Jan 1 2016 the over pile was reduced due to abnormally high spending of cash during 2015. Read about it in my interview – We spent a bunch of money, happiness went up by zero. It was not a wise usage of our capital in my opinion (wife disagrees with me on this one). If I looked at the value of individual equity accounts they would have matched the market in 2016, but because I define my “investment pile” as all accounts and cash on hand, anytime we have a large cash expenditure (car, home improvements etc) it reduces the pile size and the percent increase in my investment pile for the year as I measure it. In reality the case we spent did result in some increase in value of the house, so if I defined my total investment pile to include the house value and vehicles it would not show the drop it did. I like to keep it simple – vehicles and house are not part of my net worth as they are not making an return for me. The other thing this does is helps keep spending in check – as money is spent I treat it as gone. This helps keep my focus is on increasing the size of the investment pile rather than acquiring expensive vehicles or spending money on my home improvements.
Go nuts in excel. Track your numbers on a broad scale and create some charts. If you are numbers guy, it is actually fun to do. I update my master excel file about once a month. Fun to watch the trends increase toward a goal line. I use Quicken daily to monitor spending as well were I also enjoy digging into numbers. I have my excel calculate how much I will likely need, current balances and a forecast and trend on when balances will reach the goal amount
.
GOOD LUCK!
Hi MI-186,
Great job! Thank you for your insight and encouragement for those of us grinding it out. I had a quick questions for you regarding real estate syndications.
Are you finding particular offerings through an investor clubs, word of mouth or on Crowdstreet, Real Crowd etc. How did you find the self storage syndication? There are multiple ones out there, how did you decide which one to go with?
I am interested in this area, as I want to diversify my syndications (I just made my first investment into a multifamily value-add RE syndication offering at the beginning of 2020)
Thank you for any insight that you or other MI’s can offer on this area!
Hi NightnightDoc!
Regarding syndications – I use crowdstreet, real crowd, google searches, and just some random people I meet at different places (sometimes airports). I work in A&D so I come across folks periodically. Crowdstreet has a couple of deals on their site and I would recommend checking them out. The site is also laid out very nicely with the important parameters when looking at a deal so you won’t have to really do any calculations yourself unless you want to. You can also watch the investor presentation and ask questions before investing in any of the deals.
Hope that helps!
Great job increasing ur income so no high in such a short period of time. curious what branch of engineering u studied , and are u still in that branch as ur income increased. I know that most of more common branches of engineering (ee, me, ce, pe, etc) typically tops out in the 180ks for even a senior engineer, unless one pivots into a managerial role. One exception is software engineering/developer role. Fellow engineer here , working in a HCOL area, and it’s not easy getting above $200k as an individual contributor. Keep hustling, keep on truckin’ , you’re killing it.
Great point about the upper limit. I have a side business that supplements my full time job. I also have a stock component and bonus component that vary quite a bit and has been double the amount in a particular year before. It’s mostly driven by macro economic factors and how much cash flow the company generates but it’s always nice to have that option. Also, you could look into managerial positions which escalates the amount too.