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.
This interview took place in October.
My questions are in bold italics and his responses follow in black.
Let’s get started…
How old are you (and spouse if applicable, plus how long you’ve been married)?
I recently turned 55 years old. My wife is 54 years old. We have been married 34 years.
We met while she was still a senior in high school and got married during our junior year in college. Our parents were not thrilled that we did not wait until we graduated from college before we got married, but they submitted.
We were not your typical college kids. We both worked full time, while going to college full time. We managed to save a small down payment and built our first house in the same year we were married (yes, during our junior year of college).
We were young, hard-headed, “dumb in love”, and nobody could tell us otherwise! But we can laugh now, as it has more than lasted the test of time.
Do you have kids/family (if so, how old are they)?
We have two daughters.
My oldest daughter is 30 years old and a career military officer. She graduated from a well-known military college, and she will likely promote to the rank of Major on her first pass next year. She is a consistent “Top Block” achiever in her career. She also has a great plan to FI by the age of 42 years old, although I fully expect her to stay in the military beyond her 20-year mark as she enjoys her career.
Our youngest daughter is 27 years old and has a great jump on her corporate career with her current Mega-Corp. She graduated from college and found a great entry level job with her current company. She has already promoted three times in three short years, so she is also a high achiever. She is married and has a new baby daughter. She and her husband are also executing their own well designed FIRE escape.
The apples have not fallen far from the FIRE tree! I am extremely proud of them both.
What area of the country do you live in (and urban or rural)?
We live in the Mid-Atlantic region of the U.S.
We live in an extremely rural area. We live on 18 mostly wooded acres sandwiched between several larger 100+ acre wooded/farm tracks. The closest neighbor is about a half mile across the lake from our home, but we can’t actually see their house from ours.
Our small town (which is approximately five miles away) has a population of 900 people, one stop light, and a traffic circle.
Yes, we live in the boonies, and we love every minute of it!
What is your current net worth?
Our current net worth is $4.3M.
Our Assets are $5.0M with leverage of approximately $700K.
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?
Our asset/debt breakdown is as follows:
- Rental Property : $2.3M
- 401k Accounts: $1.5M
- IRA’s: $101K
- HSA: $30K
- Cash: $168K
- Insurance Cash Value: $20K
- Angel Investments: $55K
- Primary House: $850K
Rental Property Mortgage: $690K
Net Worth: $4.3M
What is your job?
My wife and I are both retired.
I started my career as a computer programmer, but I changed career paths in mid-stream to Supply Chain Operations primarily in the Pharmaceutical sector. I held a variety of mid-manager, director, and executive level roles during my career culminating at the Vice President level.
My wife spent her career in a laboratory setting as a Medical Laboratory Technician primarily in the hospital sector. She took off nine years in the middle of her career to be a stay at home mom but went back to work for a few years later in her career.
What is your annual income?
Our current annual “spending income” in retirement is $120K/year. I’d define “spending income” as the income we choose to utilize for day-to-day expenses.
This income is entirely from our rental property portfolio. We directly own over fifty rental units located within an hour drive of our home.
I do not currently include other traditional asset growth in our “spending income” as we let our other traditional retirement investments continue to compound untouched at this time.
We also continue to pay down existing rental property mortgages to the tune of approximately $32K/year (also not included in the “spending income” figure above).
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?
My working career started at a young age. I started working at 13 years old on local farms picking up hay and helping with dairy cattle for $2.50 per hour.
My dad was a policeman and my mother worked as a County Court Clerk, so we certainly were not wealthy growing up. My parents were hard workers and wonderful providers from a generation that grew up through the Great Depression. They valued family and a person’s word was the most important thing you could have. It was by far their greatest gift to me beyond being loving parents.
They were never well off financially, but we always had a good roof over our heads and plenty of food on our table. I was fortunate to have wonderful parents. My wife also came from wonderful hard-working parents, who were also excellent providers, but also less savvy financially.
My first full time job was at 18 years old as a delivery driver for a local auto parts store starting at $4/hr. I worked 60-80 hours a week through college.
I was the youngest and only sibling of four to go to college. I got my first career role with a tiny local tech company as a programmer making $18K/year after graduating with a BS in Computer Science.
My wife got her first degree in Bio/Chemistry and then a second MLT degree. She worked for a small optical company while in college, making $8/hour. She later got a job with our local hospital after graduation making about $12/hr. More importantly, she had a 401k plan through that hospital job, which we thankfully began contributing to and getting at least the company match of 4%. That was the beginning of our fledgling investing careers at the grand old age of 21/22 years old.
We finished college with student loans of $12K, which we diligently paid for 10 years until paid off. After graduation we sold our first house (two years after building it) for a profit of more money than we were making per year combined, and my budding interest in real estate investing probably began in earnest at this point. We bought our second (larger) home with a down payment from the profit on the first home sale.
My first programming job led to another small tech company paying me $30K/year. After four years, I came in to work one morning and noticed a lock and chain on the front door of our office building. The building had been seized over night by the landlord for lack of rent payments. I learned later that day, that our business owner had defrauded his bank and several investors and was completely bankrupt. We were all sent home without back pay, without jobs, and without much explanation.
I remember sitting in the den of my brand-new house, at 11 AM in the morning, wondering how I was going to explain what had just transpired to my newly pregnant wife! I was 24, in debt, out of work, and expecting a new baby! I made a promise to myself that day, that I would never feel so trapped and failed ever again.
Fortunately, my wife was still working, and a good friend called when he heard the news. He offered me a part time programming job, that got us through a few tough months until my first Mega-Corp break came. We never missed any payments, but I learned a hard life lesson about debt and job losses. Fortunately, I was young and learned quickly.
I went to work for Mega-Corp#1 as an IT Manager making $42k/year. I quickly rose through the ranks, and when an internal opportunity came to cross-over into the operations side of the business, I jumped at it. I was already burnt out from programming, so a new operations career path was just what I was looking for. We continued to hammer as much as we could into our fledgling 401k’s during this stabilizing period.
Four years later, I made a change to Mega-Corp#2 as a Distribution Manager starting up a large Distribution Center on the East Coast. My new salary was $65K/year (plus bonus) and the raise enabled us to really begin pouring into both our 401k’s.
My wife was still working, and her salary was $25K/year at this time, but she still had her all-important 401k, so we continued to invest as much as we could squeeze out. Over this period, we were putting about 20% of our salaries away in our 401k’s. I was getting an amazing 10% company match on mine, and hers had improved to a 6% company match. We had our second daughter during this period, and life was really starting to take shape.
My career accelerated quickly over the next few years. Climbing from a manager role over one Distribution Center (DC) to Associate Director over several DC’s, to a Director over U.S. Supply Chain Operations, and eventually to Vice President of North American Supply Chain Operations. My salary grew accordingly from $65K/year to (eventually) $190K/year with bonuses reaching $84k/year in my final year.
My wife stopped working to stay home with our two daughters for nine wonderful years when I made Director level, and we finally felt we could afford to give up her salary. After the girls graduated high school, she got bored and decided that she wanted to go back to work. She worked six more years before she retired in 2016. Her final salary was $34K/year.
What tips do you have for others who want to grow their career-related income?
Always give more than is expected.
I tell my daughters, if your company pays you a $1/hr, give them at least $1.25/hr worth of effort. They will eventually recognize your value and your career (and salary) will grow.
If not, graciously move on to one who does value your effort. Both of our daughters are catapulting in their careers based on that simple philosophy.
What’s your work-life balance look like?
When I was still working, I worked hard. I traveled way too much during my career, which is why my wife opted to stay home with our daughters. But I never missed a ball game, dance recital, or any other important extracurricular activities that either daughter had.
Life can be a tough balance, especially early in your career. We always managed to take large annual vacations each year as a family. We both even managed to coach our two daughter’s sports teams. Eventually, I continued to coach teams after my daughters were both grown. I coached for a total of 20 years, all while working.
We have also always made every holiday a special priority to be together.
I can’t say we were perfect parents, but I think we struck a decent family/work balance. Family is too precious to miss out on. It is a big reason that we decided to FIRE as early as possible. You will never regret sacrifices for your family, but never sacrifice them inadvertently.
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?
Yes, we developed incomes from our rental property businesses mentioned above and several small angel investments with other local businesses.
We own five rental property LLC’s that all produce incomes. We own nine buildings containing over fifty rental units. These are all small multi-family buildings typically comprised of two-story town homes or apartments. The gross rental income currently exceeds $300K/year.
We currently live on the income from these businesses (approximately $10k/month after expenses and mortgages), and it remains heavily tax sheltered by depreciation.
Our rental businesses are relatively passive for a real estate investment. I “black-boxed” the management with a local property management company, so we essentially receive monthly mailbox money (actually automated bank deposits) from the management company.
Our returns have averaged between 12%-15% per year consistently across all properties based on a combination of un-leveraged and strategically leveraged properties. We are continuously looking to grow this segment of our investment portfolio, but the current economic cycle is not currently optimal in our strategic target market.
I developed a very rigid business model for rental property acquisitions, so the planets will have to realign for our next acquisition to occur, but it eventually will.
We also have two small angel investments (originally invested about $80K between the two investments), which currently produce approximately $1200 per month of combined income.
One is with a local brewery. We assisted with a one-time equipment and facility expansion in this local brewery business, that has gone quite well.
The other is a similar investment in a local auction company. We purchased a small building, that we then owner financed to the auction company, which is also paying off well.
The brewery investment is 2-years into a 5-year complete payoff. The auction company is 5-years into an 11.5-year complete payoff.
This was money we felt we could afford to lose, but I did a significant due diligence on the businesses before taking the leap, and they have paid off well. These were also small local businesses that we felt strongly would help our small town.
We are saving this income for our next investment, so it’s not part of our “spending income” at this time.
What is your annual spending?
Our actual monthly living expenses are about $4K/month ($48K/year) with a stable “spending income” of approximately $120K/year.
We have been able to indulge freely on travel, dining out, and family based on this budget. We have yet to spend our entire annual retirement budget in nearly four years of retirement.
Last year we did several long road trips one to the Florida Keys for a month during the winter, and another road trip to Nova Scotia, Canada for another month during the summer.
Travel has been a spending priority in retirement, although COVID has put a small damper on it this summer.
We are fortunate to live in a very low-cost area of the East Coast, and with our mortgage paid off, our overall expenses are low. We essentially have just the normal living expenses (electricity, insurances, taxes, groceries, internet service, cell phones, etc.).
We also continue to let our traditional investments growth, and plan to eventually draw some growth (only), once they are available without IRS penalties.
What are the main categories (expenses) this spending breaks into?
Breakdown of annual expenses:
- Insurances: $6.5K
- Personal Property Taxes: $0.7K
- Household Expenses: $6.1K
- Auto Expenses: $4K (does not including auto insurance, which is under insurance above)
- Real Estate Taxes: $3.9K
- Healthcare: $3K
- Groceries: $9.6K
- Utilities: $3.6K
- Dining Out: $6K
- Miscellaneous: $1K
- CAPEX/Maintenance Accrual: $4K
Additional Spending Categories:
- Travel: $20K
- Gifts: $10K
- Splurges: $5K
- Savings: (all other unspent incomes)
Do you have a budget? If so, how do you implement it?
Yes, we have always zero dollar budgeted.
I initially managed our budget for the first ten years of our marriage, and I have always self-managed our investments. My wife is also great at budgeting, and she managed our budget for many years while being a stay-at-home mom. Although she has no interest in investing, so she gladly lets me manage our investments.
I took back over the budgeting when we retired, so I now also manage the bills and investments. I have an elaborate money management spreadsheet that also serves as a pseudo checking account register. Each month I deposit our income as a series of “buckets” (accruals) of monies, which add up to our entire income deposit(s). Expenses are paid (deducted) from these buckets of monies as they occur. Normally the deposits cover next month’s expenses, and longer-term expenses (quarterly, annual, longer-term CAPEX expenses, etc.) typically accrue as needed (monthly) until payments are due. I can see the value of any category (bucket) at any time, as well as the overall account balance(s).
This has allowed me to track and manage our expenses every month, and typically takes less than two hours each month (while also paying bills) since everything is essentially automated (deposits, payments via credit card, etc.).
I believe one of the biggest reasons we became FI was tracking our budget and even more importantly tracking our investments at least quarterly. Automating processes has also been a huge help.
Remember my hardship story above about losing that job? As a result of that experience, I started tracking everything. In that horrible life moment, I believe we became destined to be millionaires.
I started tracking our net worth before I knew what a net worth even was after that day. We were deep in debt (credit card, school loans, mortgage, car payments, etc.) at the time of that job loss. I was so deep in the red, that it was physically depressing in that moment. It triggered me to begin tracking our slow up-hill crawl out of debt in a notebook (manually) because I needed to see a positive growth instead of just a big fat negative number each month, which was soul crushing.
I essentially created a negative net worth graph, that I plotted monthly just to see the upward improvement month-over-month. Luckily, it all worked out and eventually I felt confident enough, in our progress, to track it quarterly (and in a spreadsheet), which I still do to this day.
It was a positive way to look at an extremely negative situation. It was a mental game, but it was effective for me.
I eventually figured out that I could extrapolate that graph to see when we would hit a break even in net worth, and eventually extrapolated it to see when we’d become millionaires. That little hand drawn graph told me that we would be a millionaires by age forty, back when we still owed over $100K in debt.
It was nearly spot on years later (hint- we hit $1M a little earlier!) It certainly saved my sanity at the time, and it definitely helped us become wealthy. Positive reinforcement in a negative situation is extremely powerful.
What percentage of your gross income do you save and how has that changed over time?
Today, we continue to save, but it is more about legacy and grand children’s education now. We have all we need to enjoy life at a comfortable retirement level. We are continuing to steadily grow our wealth at well over $120K/year in perpetual growth of assets and paydown of rental leverage.
During our working years we started with just capturing company matches on 401k’s of 4% (initially) in our early twenties, quickly ramping up to 20%-30% by our early thirties, to saving more than 50% of our incomes in our later working careers, so we could leave the workforce by age fifty years old.
What’s your best tip for saving (accumulating) money?
Track it and automate it.
If working, take it out of your paycheck before you see it. Automatically raise the saving amount at every raise or anytime you pay off something.
Do this early and the rest is easy. It keeps your spending low, while it grows your wealth automatically and exponentially.
What’s your best tip for spending less money?
Track every time you spend and consider whether the spend is really worth the loss of potential compounded growth.
I talked to my daughters (financially) by introducing them to their “old selves”. I explained their old selves would not want to eat cat food, or worse yet, be sadly dependent on their future children. When you consider purchases, look at the purchase from your “old self” perspective for just a moment to see if it really brings you value. Sometimes it is absolutely worth it, and that is great. Spend it! But more times than not, upon further reflection, your old self will tell you to save the money instead.
I also caution them that all things are done in moderation. You can also be so frugal that life becomes miserable. It is a careful balance to make sure this doesn’t happen. You also need to live life well!
What is your favorite thing to spend money on/your secret splurge?
It is travel…and our home.
We love travel and accrue for it, so we can spend it without guilt. We love seeing new places, but we also love our beautiful home. We love spending on our “family compound”, which brings a high quality of life when not traveling.
We added a gorgeous, covered pergola last year to our patio, and will likely add an outdoor stone fireplace to it this year. We spend a lot of quality time with family and friends at our house, so it brings great value and enriches our lives.
What is your investment philosophy/plan?
My traditional stock market approach is similar to the simple three-fund index approach. I am now a pure low-cost index investor.
I am currently within my five year lead up to drawing from my traditional retirement accounts, so I am treating my investments as though I’m inside my initial five-year lead-up to our sequence of return risk period. I would normally be 60/40 (stocks/bonds), but I dynamically allocate based on the overall P/E of the market. Since the current P/E is high, we’ve dynamically adjusted down to 50/50.
I will likely follow this method until we are past our sequence of return risk period, while gradually increasing our stocks in a Smile Glide Path manner as we age. If I considered my overall portfolio (market and rental properties), I would be considered extremely conservative by most. But I am ok with that, I know who I am.
Just before forty years old, we became millionaires. But I knew we would still not have the Fat FIRE retirement we had envisioned (we didn’t know that term at the time!) based on just our traditional retirement accounts. We decided to target investing in rental properties in our early forties.
I invest locally in markets, that I have a strong knowledge in. I invest for cash flow and a minimum paid-off return of at least 8.5% annually (without appreciation). I strategically leverage properties to increase my returns (as high as 28%-30% annual returns, again without appreciation). Overall, this has provided a strong average 12%-15% annual ROI across my REI’s (again, without appreciation).
I don’t typically invest speculatively. I do invest in areas that will appreciate, but I don’t consider appreciation in my investment decisions because it’s purely speculative. I also do not partner, and I have no desire to invest with others making decisions. It’s all on me, and I can control my decisions with a solid proven business model that we live by.
We may miss some potential investment opportunities with my rigid business model and rules, but we are doing just fine. I believe it may have been Ben Franklin who said it best, “a rich man is one who knows he has enough”.
What has been your best investment?
My best investment has been my education (and subsequent career)…and financially speaking, my rental properties grew from $200K in just over ten years to $2.3M in value.
It is hard to imagine that kind of growth anywhere else that is not significantly more speculative. Leverage, when used carefully, is an amazing financial too.
What has been your worst investment?
An individual pharmaceutical company stock was my worst investment.
I worked in the Pharmaceutical industry for over twenty years. As such, I was intimately aware of other companies R&D initiatives. One such company was developing a new cancer therapy, that was in stage three trials and doing great. I got in at an average cost of $11/share. I was still young (and an idiot) when it came to stocks. I hadn’t fully learned about low cost indexes at this point, so I put a small fortune on this one company stock. It got as high as $89/share and was targeted for >$300/share at launch.
Long story short…I got greedy, and approval never came. I finally got out at $5 per share. It was like catching a falling knife!
Lesson learned, and it was my last individual direct stock ownership. Luckily, I was only in my late twenties, and recovered with an expensive lesson well learned.
What’s been your overall return?
I don’t really know exactly what my overall return has averaged. I would say it is pretty close to the typical market index(es) average based on my consistent index investments, so maybe around 7%-8%.
I have already mentioned my REI investment averages, which I’ve tracked much more closely over the past 10-11 years, so I’d venture an estimate of 7%-8% for the first 20 years (markets only), and a blended (markets and REI) average of 10%-12% for the last 10-15 years.
How often do you monitor/review your portfolio?
I review my REI monthly as part of my normal business account balancing. My market accounts are reviewed quarterly.
I typically rebalance my market account funds annually or anytime there is a 5% swing in any area. Again, this is all done through an customized set of interactive spreads sheets, complete with graphics, etc., that I built over the years.
Before anyone asks, the spreadsheets are so personalized, they’d never do you any good! Trust me, you’d be better off customizing your own! As an ex-IT guy, I get pretty crazy with my spreadsheets!
How did you accumulate your net worth?
I made most of my wealth through old fashioned payroll deductions to 401k’s. Saving at least enough to capture company matches initially in our early twenties, but quickly accelerating those contributions at every opportunity (raises, pay offs, etc.) to gradually increase my contributions to the IRS maximums.
Later in my career, as my salary and bonuses grew, I paid down our mortgage with extra monthly principle payments. We also used our bonuses to pay off our home mortgage and then to invest in multi-family rental real estate.
I essentially continued making my home mortgage payments (after payoff) to my rental property mortgages to accelerate those payoffs. I no longer accelerate those payoffs in early retirement. I now strategically manage my leverage to capture higher returns.
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?
My strongest attribute was persistence in saving, but I also became adept at investing along the way.
I was mostly fortunate to work for good companies that recognized my skill sets and rewarded me accordingly on the Earnings front. But I am (definitely) a saver at heart.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
I already mentioned my biggest two setbacks above (a surprise job loss and a bad stock investment).
If you have read this far (thank you btw), you probably do not want to read it and hear my pain again!
What are you currently doing to maintain/grow your net worth?
More of the same.
Continuing to invest in low cost indexes funds, while managing our diversification based on ages, sequence of returns risk, and occasionally dynamically adjusting based on market indications (P/E).
I am also waiting for the next real estate cycle to purchase more rental real estate.
We have also started a 529k plan for our new granddaughter and will likely do so for any future grandchildren.
Do you have a target net worth you are trying to attain?
We initially targeted $2.5M for early retirement but we readjusted that goal to $3M to give is some additional buffer assets as we got close. We ended up hitting $3.6M before both retiring.
Now that we are retired, it is less about a specific number, and more about how we want to live out our lives.
I often used the term “lifestyle design” instead of “targeting a number”, when speaking to younger investors. Start with the picture of what you want your life to look like, and reverse engineer it to build your FIRE plan.
I still enjoy the “game” of investing, so who knows where this road will end. Hopefully, decades from now and a life well lived!
How old were you when you made your first million and have you had any significant behavior shifts since then?
As I mentioned above, it was just before we turned forty years old.
I have had many behavioral shifts since that initial $1M. I quickly realized it was not nearly as exciting as we thought it would be. (I think we celebrated over hot dogs at a local “dive” restaurant that night, which we were going to anyway!)
It did force me to start thinking out of the box on things like rental real estate because we wanted an early and comfortable retirement.
The third million caused my biggest shift workwise. After the $3M point, I knew I could quit working anytime and the stress essentially melted away, while still working in my high stress Mega-Corp environment.
What money mistakes have you made along the way that others can learn from?
Looking back, I might have pressed to improve my earnings sooner. Early in my career, I wasn’t as confident in my skills. I could have made a lot more money earlier.
We could have moved to higher paying areas, but I’m glad we didn’t. I would suggest making a change as soon as you recognize a company has pigeon-holed you into a dead-end role. Do not wait, wondering if you’ are really worth it. If you have read this far…you are very likely worth it! Push for career growth early.
What advice do you have for ESI Money readers on how to become wealthy?
ESI has spelled this out as well as it can be said…Earn, Save, Invest. It is really that simple. (That doesn’t mean it is always going to feel easy, but it really is that simple). Persistence wins every time!
My daughters already get so excited when they look at their accounts. I get these wonderful, “…Hey Dad, look at this…” messages from them as they see their own FIRE numbers compounding now. It’s so freakin’ awesome! It’s really about persistence in those three fundamental areas.
Also, don’t be afraid to try something new like real estate investing. It’s not for everyone, and that’s OK. But for those who can wrap their heads around it, it can be a phenomenal investment over time.
What are your plans for the future regarding lifestyle?
We are already there (early retired).
We will travel more and spend time with the new grand baby and look forward to more grand babies!
What are your retirement plans?
My wife retired four years ago. I have been fully retired for 3.5 years now. We will continue the same strategies: Travel, spend time with family, and grow the nest egg for fun.
We also put a big focus on staying healthy, so we can enjoy a long retirement. We actively exercise. We kayak, bike, walk, and I lift weights and run three times per week. My wife prefers low impact walking to running. I will eventually trade in my running shoes for walking shoes, but I’m fighting it as long as possible!
Are there any issues in retirement that concern you? If so, how are you planning to address them?
Our biggest concern, like most, is healthcare.
We are on an ACA health plan. Rental property income has given us a unique situation (with sheltered income from depreciation), which has enabled us to qualify for subsidies. While I will hold my opinion on whether this model is effective, efficient (or fair), it has (so far) provided us an affordable option by managing our MAGI, especially given some pre-existing medical issues within the family. It has also allowed us to contribute and max out our HSA‘s for potential future medical expenses.
Who knows what the future holds? It’s a huge issue for our country. We need to find a way to make healthcare more affordable and competitive to lower the costs. I don’t see it as a human right, as many do. But I do get it, people should not have to go without healthcare or go broke because of an unlucky health issue. It must become more affordable for all.
I really do not see the ACA surviving in its current form, but I am also surprised it has made it this far, so maybe I’m wrong! Maybe it can be improved through more competitive actions like intra-state competition between insurers and more transparency in pricing. Either way, I’d be in favor of almost any improvement options that include better pricing and still have the same high-level quality of healthcare.
This is one area, very few of us have a rock-solid answer to. It’s fluid, it’s likely different based on your circumstances, but it helps to be flexible and have backup plans if you retire early.
How did you learn about finances and at what age did it “click”?
My first job at that auto parts store, brought me a brief interaction with the business owner one evening. I was working the auto parts store one night (getting as many hours as I could) when the owner stopped by with dinner. He was a great guy and often stopped in with a free dinner.
He was this “old” forty-year old guy (early retired). He made his fortune starting up several small businesses like the auto parts store and a tire store. I got up the nerve to ask him how he did it. How had he made his fortune (since I knew he had not even graduated from high school)? He said, “Do you see that video store next door, and the laundry mat on the other side, and that restaurant next door, and those three large industrial buildings out back?” I nodded, somewhat confused. He said, “I own those buildings. Each business pays me rent each month. I make way more in rent than from my own businesses.”
He stood up and said, “have a good night” and walked out the door. I sat there for a long time thinking that night…
Years later I was traveling and stuck in an airport on a layover. I was bored, so I decided to pick up a magazine from an airport news stand. I was in my late twenties at the time. Instead of grabbing my usual favorite sports magazine, I decided to buy a well-known finance magazine (back in the day when we still read magazines). It happened to have a basic article on low-cost stock index investing. Probably the best $3 that I ever spent…that brief article triggered many more years of investment reading to this day.
Who inspired you to excel in life? Who are your heroes?
My parents without a doubt. My parents were the most dependable, wonderful people that I’ve ever known. They were honest and you never had to question their intentions or loyalty. They taught me how to live life. They were simply the best and gave me the moral foundations that I live my life by. This was way more valuable than any dollar I have ever earned or ever will earn.
I also had a phenomenal high school football coach that challenged me to go to college, which changed my life trajectory.
Of course, that business owner that I worked for in college, who triggered a real estate bug, that grew.
And I’d be remorse, if I didn’t mention my wonderful wife, who reminds me every day to “live in the minute” and enjoy our successes, instead of planning for every single thing life can throw at us! (Us planners will build a spreadsheet and backup plan every scenario, that we can get away with, if you let us!)
I will be forever grateful to these wonderful people in my life, and so many more.
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?
The Millionaire Next Door, Rental Properties for Dummies, and The Simple Path to Wealth.
Those books are self-explanatory for most of the readers here at ESI.
I would add a few favorite blogs… My first FIRE blog was our good friend here at ESI, but it was initially on his older site at FMF. I stumbled onto it during a desperate internet search on how to leave the rat-race well over ten years ago. I then followed him over to ESI. He is still my go to blog after all these years.
I also loved my first time reading the Mad-Fientist’s blog about Roth Conversion Ladders. When I found J.L. Collins’ stock series, I could not put it down for days. I am also a big fan of the articles on FIPhysician.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
This is an area where we could focus on more, moving forward.
I do accrue a “bucket” for donations but often find myself struggling to give even after money is accrued.
I typically give directly to people and small local organizations, that we personally know are in need because I am distrustful of larger foundations. You hear about so much waste and fraud. I would hate for donations not to be used for direct assistance.
There are significant local options, and I am learning more as we go, so we will continuously improve this area.
I do (also) volunteer as a mentor for about six younger people on personal finance and rental property investing. It’s a very personal way for me to give back in time.
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?
Yes. We currently have our wills setup to split evenly between our two daughters.
We have also started a 529k plan for our new granddaughter and will also do so for future grandchildren.
It has been quite a while since we setup our wills, and we need to update them as our wealth has greatly changed and our thoughts on our legacy are still evolving. We just discussed making an appointment to have it updated.
I imagine we will donate some portion and still leave some sizable gifts to our daughters and family members. Our daughters will likely be retired and wealthy (on their own) by the time we are both (hopefully) gone from this world, so we will likely gift to them and grandchildren along the way, while it has the most meaning.
Like donations, this is another area we will likely continue to evolve as time goes on.
The Millennial Money Woman says
Thank you so much for sharing your journey. First of all, I think it’s incredible to see how your marriage withstood the test of time, which really does go to show that finding a partner with the same financial mindset is integral when it comes to building and maintaining your high net worth. Second, I think your advice to your daughters is very wise – put in more effort than you are currently being paid and you will likely be rewarded for it. If not, find a new company that will reward you for your effort. One of my game-changing books was also The Millionaire Next Door – I’ve probably read through the book now at least 5 times. The first time I read the book, I was on Winter Vacation at college and my goal was to read 1 book a day – and The Millionaire Next Door was the first book I read and highlighted likely 90% of the book. What a gem.
Thank you so much for sharing your thoughts and story. I wish you and your family continued luck and success.
Thank you for the kind comments. My wife and I were very fortunate. It hasn’t always been perfect, but we managed to build on the best strengths of both of us.
John M Rumschlag says
You say more with less verbage than most..well done.
You could (should?) do a blog!!
I learned a lot…..
You are too kind. I wish I liked writing more! I love teaching about investing and I work with several younger individuals on a regular basis. That provides a nice outlet (without having to write too much!) 😉
Bernd Doss says
“a rich man is one who knows he has enough”.
Great interview with something for many young folks to learn from. The planning and execution of the plan, in my opinion, are key elements for success, and as expressed by the interviewee, simple to initiate. Perseverance is always the hardest part. Great read.
Thank you so much for the kind words.
Any insight you can share on what your business model for rentals consist of and how you picked a rental management company in your area?
So my rental business model is quite specific. I wrote/refined my business plan over the course of a couple of years. I focus on multi-family purchases within a one hour radius of my town. I have a fairly involved criteria for selecting appropriate properties and expectations for returns. I’ll provide more details through the comments below. There seems to be an interest in my model based on current comments, so I’ll try to clarify the basics over the next few responses, so I answer everyone’s questions.
The management company selection was less involved. We had roughly five to select from in our area. My first management company was horrible and we only lasted a year with them. By that time, I had a better feel for the others through discussions with other owners. We have been with the second company for eleven years now and are very happy. None are perfect. No one will manage exactly the way you want it done. But unless you want the headache and additional liability of managing properties (I did not!) the find the closest match and work on the differences.
So I wanted to provide a little more insight on our business model as promised above. Recognizing this business plan is more than 70 pages, I’m going to try and distill the critical points into a few paragraphs.
My criteria for investment has five criteria: 1) must have Cap rate greater than 8%.
2) must not have a year 1 negative cash-on-cash return, and subsequent yearly returns of at least 8%.
3) must have a year 1 total return of at least 5%. (Total return consists of cash flow, equity accrual, appreciation, and tax benefits.)
4) must have a DCSR of at least 120%.
5) must have a minimum cash flow of $100.00 per door.
We focused on buildings that had the following opportunities:
1) high vacancy due to poor management.
2) below market rents.
3) extensive cosmetic (not structural) repairs.
4) master metered that could be converted to sub-metered units
5) ability to add income producing options (think: laundries, vending, etc.).
6) high probability to protest high tax assessments.
These gave us opportunities and specific objectives to meet with each property we considered.
Ultimately, we developed a three tier decision matrix that allows us to fully evaluate properties. Level 1 is a quick back-of-the-napkin assessment. It eliminates 99% of properties quickly allowing us to focus on the 1%. Level 2 was a more in-depth assessment to meet the specific criteria above. Level 3 requires a deep dive into the properties three year history and projecting out 20 years of potential ownership.
Our selection process is in-depth. We essentially underwrite every property for our lender ahead of time. We pass on a lot of potentially good properties, but if I select one, I know it’s going to provide a profit for a long time.
I hope this helps!
Charlie @ doginvestor.com says
The growth in investments has been incredible, especially the property space! I’m interested that despite your combined incomes not being huge you were able to grow your wealth and income so much.
I’m interested in the properties, how did you decide that you were comfortable investing into real estate at 40, when you hadn’t really done much of that? Was it because you still had a job and the $1m net worth? What made you choose property over investing only equities/ into your own business/or software considering it once was your field?
Great questions. Thanks for reading. Well, I was doing the math one day at lunch and realized my retirement funds would not cut it for a comfortable retirement. I decided that I needed a side business to generate more income. My work experiences would lean toward an IT business model, but I’d been out of programming for too many years by my early forties. I knew I needed a fairly passive business (at least initially) because I was working a lot of hours and traveling in my career. I also knew I needed better than average (7%) returns. The voice of my old boss (while in college) had been screaming about rental property for a long time in my head. So I set a goal of reading about real estate for one hour every day. I began molding my business plan through that reading exercise. Eventually settling on some very specific ground rules for purchasing and managing my business. I fell in love with the model. I devoured every book, article, and blog I could finding the topic. It took several years to prepare for my first purchase, but in hind sight, it was pretty flawless and I still own those buildings today and they have been very profitable. So to answer your question, it was initially the fear of not retiring comfortably and providing well for my family that pushed me. Later, I realized I had stumbled onto a much better ROI option with lower risk factors and overall better diversification. I decided along the way to see which avenue (REI or Index Funds) would win out for our future investments. I would split my investments evenly for a while and quickly realized the REI would win hands down. We continued both, but became heavier in REI, and I essentially built both into retirement vehicles where either could support us. A win-win as it turned out. Thank you again for reading!
Back in the day of magazines, I read Money magazine regularly, but as our financial net worth improved, I found it less educational. I was also fortunate enough to have a dad who subscribed to the Wall Street Journal which opened my eyes to stocks, businesses, and industry movers and shakers. Good on you for introducing your daughters to finance at early ages!
Thank you so much and for reading! I wasn’t sure if we can mention companies here but mine was Kiplinger’s years ago. Most magazines became too basic very quickly, but they were great starters for younger investors just starting out.
Accidentally Retired says
Wow! Great job with your rental property business. It is incredible what you’ve done and now can really enjoy being retired AND build a legacy for your family. Congrats!!
Thank you so much! We are definitely enjoying retirement. It’s hard to believe we are four years into retirement already!
I know what you mean about being proud of your daughters. My 27 year old daughter mentioned to me she had reached 100k in her account. Proud Papa indeed!
Kids are wonderful, right?! Especially when the listen! 🤣 My youngest daughter (27) told me over the weekend that she got another new raise, (and before she could tell me to let her finish!), she said she’d already bumped up her 401k contribution several percentage points! I love when they are ahead of me!! 😉
Great interview. Really enjoyed it. I’m a little curious about your ACA plan. Your healthcare annual expenses are only $3,000. Can you explain? Thanks.
Thanks for reading. Yes, $3k per year so far in four years of retirement. I’ll preface this response, as it may rub some folks the wrong way, but I’m not here to argue the legal or moral aspects of our existing tax and health laws. (I’ll gladly argue them in person over a cold craft beer, if anyone is buying!…Lol!)
So the unique part about real estate income, with approximately $120k per year in “spendable” income, we also generate depreciation of nearly $60k per year (on paper). The net effect is a MAGi that falls under the 400% Federal Poverty Level (FPL) after several other above-the-line tax deductions (Ex. $3k carryover losses, $9k HSA contributions, etc). So the government provides a very generous subsidy each month. (My first year in retirement only cost us $1.54 per month in premiums that otherwise would have cost us $1500/month). Last year, our premium was approximately $120/month for an Anthem Bronze HSA eligible, High deductible plan. We paid approximately $1450 in total premiums and another approximately $1500 in deductible through co-pays throughout the year for doctor and dental visits. I hope this helps explain the $3k per year. I will say that it helps to have a good grasp on the tax laws in early retirement. It has helped us immensely on several fronts. We originally planned for $2k per month in health spending. We have been able to save the difference in an HSA and a HYSavings account for future potential health costs. Thanks for the great question!
This is a fantastic millionaire interview. Thank you so much for taking the time to share your amazing story here. I feel like I can relate very much to so many of your experiences, and decisions along the way.
Congratulations! I wish you all the best in the years ahead.
Thank you so much! You are way too kind. I enjoyed your interview as well. This site is such a great resource for FIRE! For many years I didn’t consider responding in this forum as I didn’t want to repeat many of the previous great interviews. Many of us have traveled the same basic paths to get where we are. I wasn’t sure that I had anything new to contribute. But more recently, I’ve realized, even in repetition, there may be value. Hopefully, the more we can share, the more people can find their own paths!
Harsh Shah says
Thank you so much for this great writeup. I am particularly fascinated by your selection criteria of finding positive cash flow companies.
Have you found a good book to read on this subject?
I am mid 30’s individual, starting to look into real estate, but most of the multi-unit properties by me (West coast) are anything but positive cash flow. All the ones I have found thus far tend to be losing money YoY (in terms of cash flow). The value is completely centered around the potentially appreciation. That does seem to be part of your equation of 3 “cash flow, equity accrual, appreciation, and tax benefits.” but seems odd to be shelling out YoY cash to support it. How have you been able to find these properties if you don’t mind me asking? Would love your thoughts on the subject!
Another great question! My business plan would definitely not work in California. (Sorry, just being honest.)
So I don’t invest speculatively and appreciation is purely speculative IMO. On the other hand, if you can do the homework and find a good cash flowing building, and can calculate a reasonable return, you know you’re going to make money over the long term. Any appreciation is just “gravy” to us. So you are right, that I somewhat ignore appreciation (not really, we do like it of course!) in my selection process. We do look strongly for cash flow potential. We forcefully drive the appreciation (in the long run) by repositioning better rents through facility and management improvements. After all, in multi-family the sale price is driven by ROI, as it should be. I could invest all day long in the stock market and average 6- 7% relatively safely. So why would I settle for any property that can’t guarantee me at least 8% without speculation? Just my own personal philosophy.
Unfortunately, you may have to look in other markets to replicate this approach. I imagine it’s very frustrating on the West Coast. I feel for you. Thank you for the great question!
I apologize for missing the book question on my first pass. There are many good books, but some of the best information in print is actuallyon blogs. If you are not familiar with BiggerPockets.com, I would suggest starting there. You can search for topics, read previous posts, ask your own questions, and honestly nearly every question under the sun has already been asked and documented. You kind of have to take the best and distill it into your own plan based on your target market,personal skills, and risk level. The great thing about having missing skills is that they can be either learned or bought (through other people’s specialties like hiring a property management company.) I knew I wouldn’t like evictions and chasing people down for rents, etc., so I learned to compensate my weaknesses with other professionals. I’m great at bigger picture assessments of properties, so I focus on the areas that I’m good at like evaluating rentals and figuring out the capital.
I realized that I nearly shorted you on another question regarding “how” I located properties. I’ve tried it all: mailings, scouring multiple listings, driving neighborhoods, cold calling owners after extracting tax information from local networks. My best source has been good old fashioned networking. I’ve found several properties through friends of friends, through realtors that I’ve met, through local REI meetups, etc. The best deals are the ones you make off market. Look to find a solution for the current owner. Is he/she just looking to get out of their property? Do they need regular income without the headache? Are they over leveraged? Are they tired of the never ending maintenance and/or management? All great areas to solve a problem for them and help you at the same time. Find a solution that helps you both and you’ll find a good deal. None of this matters if your area doesn’t cash flow though. If that’s the case in your area then you have to find a new area. Best advice network, network, and network some more. It’s the same advice for a job search. It’s who you know, not what you know sometimes! (Sorry it took me three responses to answer your single post!)
thank you for the sharing, lots of good content and I learned a lot from you. I am curious about how did you start investing in rental properties and if there any books or website/course you can recommend me to learn from. I am new but love to dip my toe in that area. thank you.
Dan, Thank you! I’m glad you found the content helpful. I’m not a big fan of most REI courses that I’ve seen. I’m sure there may be some legit courses, but I haven’t experienced them. Bigger Pockets.com is a great resource as mentioned above. I would suggest spending a significant amount of time reading on that site. You can learn everything you would learn in any REI course on that site for free. There are tons of great REI content on that site.
As for me, as mentioned above, I spent a couple of years preparing my business plan and building capital to get started. I networked locally until I found the properties that met my business model. I leveraged those early properties, but never more that 70%. I also utilized owner financing several times, after traditional financing maxed out. I paid down properties as fast as I could manage. It worked for me.
Not knowing your specific situation, it’s hard to give good advice. It will really depend on the skills you bring to the table, the assets you can deploy, and the financing you can muster. It is a much longer conversation than a single post. Start with reading…a LOT. Good luck! Thank you for reading and commenting!
Sounds like you have done a good job. But no, as a TAXPAYER I do not appreciate paying for your ACA subsidies. I work hard.
Mel, I knew there would be a few that my tax efficient strategy would strike a nerve with. No arguments from me, as I’ve worked hard too and also paid a lifetime of high taxes. I’m sure you don’t turn down the large standard deduction or itemized deductions also provided, or the individual tax credits, or the roll over losses when applicable, and I’m sure you maximize your tax efficiency just like the rest of the world or you likely wouldn’t be here reading a FIRE blog. It’s the tax laws we have. Someone is always paying more taxes as a result of all of those credits and write off’s. Here’s to living in a country that gives us the ability to change the laws we don’t like! (Just realize they may eventually impact you too.) Cheers friend! 🙂Great discussion.
David @ Filled With Money says
This was a great story. Congratulations on creating a wonderful life for yourself, your wife, and your daughters.
If I may ask questions, was your salary $190k PLUS bonus of 84k (all in 274k) or was it 190k with bonus? How long did it take you to reach the income level? Have you ever thought of leaving the company for a better opportunity down the road? Did you have to negotiate your raises throughout your career by leveraging an offer?
I’m in the beginning processes of building my career so any advice would be very appreciated.
My final base salary was $190k plus a bonus of $84k (total of $274k). It took eleven years to reach this level from a starting base salary of $65k with this company. This was after nearly ten working years for other companies and switching careers paths (IT to Operations)mid-stream. I was promoted roughly every couple of years with this company into increasing roles and my salary (and bonuses) increased accordingly. I was offered most promotions based on exceeding expectations at each new role. But I also voluntarily took on additional projects and responsibilities to make my roles even more valuable to the company. While I did not actively seek out other companies during this period, I was offered jobs by competitors fairly often during this period. I never utilized those offers to leverage promotions, and I chose to reject those offers based on my loyalty and continuing growth within the company I currently worked for. They liked me, and I liked them, so I grew in responsibilities internally. However, if this had not been the case, I would have sought a new company to continue my growth. I was fortunate to work for a good company. As I tell my daughters, give more than asked, and you should be rewarded or be ready to move if this effort is not recognized or appreciated. Best of luck in your career!
Papa Jaypes (aka MI-254) says
What a wonderful interview! Congratulations on your successful career and full, balanced life. Well earned and well lived by all accounts. What incredible accomplishments to have reached by 55, very inspiring!
It sound like you’ve done a wonderful job of raising some money savvy kids as well. Besides the “future self” visualisation, any other methods or tips/tricks, tactics that were useful? Or any books/resources that you recall helped in particular?
Thank you very much for the incredibly nice comments. This may be a more philosophical answer than you’re looking for, but I think my biggest takeaway in my own FIRE journey has to be something my Dad used to say. It still rings very true today. He would always say, “…in all things, remain balanced.” I’ve learned that keeping all things in perspective (not over stressing to save to the detriment of family happiness) enabled me to live a more fulfilling life, while ensuring our own long term sustainability. You have to keep all things in some level of balance or the other things won’t matter. You can’t have happiness without family, good friends, security, and freedom. Don’t over shoot in one area to the extent it hurts another area. Many of us are so driven to achieve, that we hurt our personal lives. Keep it all balanced. On the less philosophical front, automating and just remaining persistent for me were the most critical steps. Have a long term vision of what you want life to look like and steadily work the problem backward to find a solutions to get there. Breakdown the hardest parts (like finding initial capital to buy that first rental property or reading articles to learn more about index fund investing) and modularize those pieces into manageable steps you can overcome and tackle in time. Like the old saying goes, “You eat an elephant one bite at a time!” (Dang, I kinda got philosophical again!) Best of luck in your FIRE path! The fact you are here reading, tells me you are already and will continue to be successful!
MI226, this is a fantastic interview. Thank you for sharing all these great details. I have a few questions if you don’t mind:
1.) As far as your real estate investing strategy, if you couldn’t find properties that met your criteria locally, would you have gone out of state? I only ask because I live on the west coast and I wish I could find cash-flowing properties. I have had to invest out of state to get the cash flow I target.
2.) Still on real estate investing, did you consider purchasing single family homes? It seems as if your entire portfolio is small multi-family.
3.) Yet again on real estate, can you share your debt strategy on the rental properties? For example, did you typically put down 20% with 30-year fixed rate debt? Or something else?
4.) Why are you concerned about sequence of return risk, when you don’t really need to dig into your tax deferred accounts (since the rental income is more than enough to cover your living expenses)? You can let all of that ride until your are 70 1/2 then take the RMDs at that point, right?
5.) Given your salary and 401(k) contributions, how much were you able to invest each year in real estate when you started in your 40s? How much was invested in total?
Thank you so much for reading. I also enjoyed your interview very much too. I’ll see if I can answer all of your questions. This is going to be a long winded answer!
1) While my business plan specifically stated I would focus on properties within a one hour radius of my home, and that is what I’ve done, it’s only because we had a good cashflow market and I personally wanted to be more hands-on early in my REI career. If I were in a market like CA, I definitely would have altered my business plan to invest in other cash flowing markets. I’ve learned that being close is nice, to check up on things, but this can be done with any number of means these days. Especially if you can get a good management team in place. I rarely have to drive by my properties these days, so it’s less of a concern to me than it was initially. I would definitely invest outside my area (or state) given your situation. Just spend more time insuring your on-site management team is good and following up with good pictures on a regular basis.
2) Good question, I considered SFH’s when I was starting my business plan. I elected not to go that route and focus on MFH’s because my cashflow analysis of our market wasn’t as good for SFH’s. There are pluses and minuses with SFH vs. MFH’s. The exist strategy for a SFH is certainly simpler. You have more buyers for SFH’s and you get market pricing, which is appealing. But you also have more ongoing maintenance costs for SFH (more roofs, more walls, more lawn and landscaping, etc.). So I narrowed my business plan. Focusing on MFH’s that were low maintenance (brick exteriors, no wooden decks, no flat roofs, smaller yards, etc.). I like getting rent for 8 units and only having one roof to replace or one small yard to mow. As mentioned in an earlier comment, we also looked for opportunities to increase cashflow via improvements to MFH’s that might not work with SFH’s (think about income generating cash laundries, vending machines, etc). Which in turn drives ROI, thus improving the value to the next investor (it essentially forced appreciation).
3) So I was in a situation late in my career where bonuses were very good. We had long since paid off our home due to diligent extra payments for many years (we can debate this strategy all day long but I’d probably do it all over again). We were already maxing out 401k’s and saving for college, but still had extra income because our expenses were very low. So we saved for large down payments initially, through essentially continuing to make “paid off” house payments (but now to an REI fund), we dumped entire bonus payouts into this bucket, and excess saving was also dumped here. Think of it as a reverse debt snowball from savings standpoint. Everything else now being paid off, we could save 30-50% of our income towards REI down payments. We never purchased with less than 30% down. I’m a very conservative guy, and I was ok with having excess funds tied up in the property in case of another crazy market downturn like 2007-2009. (I wasn’t getting caught over extended.) We took every penny from cashflow to build the next downpayment, on top of our high savings rates and bonuses and quickly snowballed the next REI downpayment. Had we not had such a good financial foundation, this strategy would have been much slower. Years later, we now have some properties paid off, that I can pull equity from to buy new properties much faster. We still maintain three mortgages at this time, but have 40-65% equity positions even in those units. When the next good market cycle comes, I will be well positioned to pickup more buildings. And it will eventually come…
4) Another good question. Again, I am probably financially conservative to a fault. We don’t really need our retirement accounts at this time, but we plan to Roth convert some portion of our accounts once we are on Medicare (as mentioned above, we are using an ACA strategy today that prevents Roth conversions at this time). We may also utilize those retirement funds for additional income at some point before RMD age to ensure we don’t jump too many tax brackets once RMDs hit. I’ve created a long range spreadsheet projecting taxes, inflated expenses, and timing(s) of future incomes, and it’s actually beneficial for us to pull some funds early from an overall tax perspective. It doesn’t mean we’ll spend what we pull, but from a tax perspective, we will likely withdraw some earlier than RMDs to better manage taxes long term. Because of this, we may be in the 5yr window of withdrawing, and I take a dynamic withdrawal and dynamic allocation approach to index investing (read BIg ERN and Micheal Kitces finance blogs if not familiar with this approach). Essentially, I allocate as most people do (120-age=equity allocation), but i dynamically adjust based on the current P/E (hint: it’s high right now, so I shift more conservative by about 10%). Similarly we will adjust our withdrawal rate when we do withdraw to avoid SRR. Eventually, adjusting back into a SMILE glide path as we age (ramping back up or lie equity position). This approach probably isn’t really necessary given our buffer assets in real estate, but again, I am a financially conservative guy. I know who I am, and playing it safe since we’ve already won the game.
5) I think I’ve probably answered this one above, but to be more specific, we were putting away $10k-$20k per month into our REI funds (at our highest savings point) with occasional larger deposits of my entire bonuses for a while. We didn’t do that the entire time, but certainly peaked at that level for a few years. This included: what used to be our house payment, monthly savings beyond our retirement & kids college contributions, and all rental cash flow. It’s all about getting to a point of no expenses and focusing all that savings to build the next down payment. It snowballs like crazy! It’s kind of hard to now decipher what savings we actually put in (earned income) verses (cashflow) growth because it was all mixed and invested together over the years. I’d estimate we saved and invested nearly $1M (earned income) during the initial ten year stretch. Our REI return has averaged double digits thanks to utilizing leverage, so we’ve been able to build a very nice asset base in RE in a very conservative manner as a result. It’s a great investment strategy, but it takes a lot of discipline to pour that much money into something while your peers are driving BMWs and Mercedes and we are driving a ten year old car and an old F150. But hey, I loved my old truck! And I really loved parking it next to the super nice cars in the MegaCorp parking lot back in the day! I actually kept my monthly car allowance and just kept investing it in buildings, while my peers p!ssed their’s away on fancy cars. (We did finally buy a nice 2004 Z4 convertible with only 40k miles last summer to drive on pretty days, so I guess it all comes around eventually! Our Z4 is now parked in my garage next to my F150!) Lol. Still love that truck! And all of my peers are still churning away on the hamster wheel at MegaCorp, four years later, still driving their borrowed super cars.
…I think we did alright.
Great questions! Thanks for sticking with this long response. Congrats to your successes MI192!
MI226, thanks so much for the thoughtful answers.
Richard Bruce says
Hi, a great story and thank you for posting. You mentioned that you developed a real estate investment model. Would you be willing to share more on that? Thanks
Richard, I mention various parts of our model in several comments above, and it’s impossible to fully describe our model in a couple of paragraphs, but I’ll give the highlights as best I can to provide some indication of our analysis. Essentially, we built a business plan that utilizes three tiers to measure properties. We look at hundreds of properties each week, so we needed a series of quick measures to to “thin the herd”. Tier one looks at price verses rent to quickly determine if a property is overpriced. Will the property’s ROI at a 50% expense level return a minimum 8% cash-on-cash return based on expected actual sales price? We also eliminate for various facility factors (flat roofs, wooden decks, and other high maintenance issues. etc.). Assuming a property makes it through this quick tier 1, our second tier measures predetermined metrics (again mentioned in earlier comments so I won’t repeat them all) based on seller pro forma and our own “experience adjusted”pro forma. What this means, is we analyze each expense and rent based on our historical experiences with our other 50+ properties. For example, if the sellers pro forma used a vacancy rate of 5%, but we know from experience our area is 7.2%, then we use our number as a conservative hedge. If a property doesn’t meet all criteria using our pro forma analysis then we eliminate it as a potential property. Lastly, if the first two tiers are passed, we require a minimum of three years actual expense and rent rolls from the seller. These numbers are put through a detailed underwriting analysis to ensure the proposed property meets a long term (10 year) expected ROI using similar metrics. We want to hold properties long term, so a property must “pass” all criteria to consider it a “buy and hold” in our model. We likely miss some decent properties with this model, but I’m ok with that strict ideology. If a property “passes”, I know we will make a certain ROI once we own and manage it. I hope this helps. I know it’s not fully described but our actual plan is over 70 pages, so it’s hard to quickly explain in a few words. Thanks for your interest!