Millionaire Interview 399

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 December.

My questions are in bold italics and their responses follow in black.

Let’s get started…

OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married)?

I am 51 (52 by the time this publishes) years old and single (divorced now for about 20 years).

Do you have kids/family (if so, how old are they)?

I have an adult daughter in her early 20s and an adult stepson (raised him) in his late 20s.

What area of the country do you live in (and urban or rural)?

I live in a second-tier MSA city in the mountain west, which is quickly becoming a higher cost of living area.

What is your current net worth?

Currently about $10.8 million.

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?

I am very concentrated in real estate, mainly in multifamily investments and a few single-family homes (including my personal home).

I’m currently trying to transition this to some more liquid assets before I fully retire from working.

The breakdown is as follows:

• Multifamily LP investment – $2.85 million (26%)
• Unrealized equity in the Multifamily LP investments – $2.2 million (20%)
• Carried Interest kickers from GP portion of Multifamily investments – $4 million (37%)*
• Various other real estate syndications – $200K (2%)
• Two Rental Homes – $1.1 million value (net value after 2.25% mortgages is $600K) (6%)
• Personal Home – $600K (net value after 2.75% mortgage is $300K) (3%)
• Cash and other Liquid investments (Dry Powder) – $650K (6%)

*I debated on whether to include this amount in the total, but after conferring with several folks on the MMM forums, I was convinced it should be included. However, I did value the amount as if assets were sold today at current reduced market values and further reduced it by the amount I estimate will be owed in taxes, so it is a net value.

EARN

What is your job?

I work for a multifamily investment company that I joined when it was relatively small and over the past 12 years has seen some meteoric growth.

I am currently at the director level.

What is your annual income?

Salary income is about $220K plus bonuses and a sweat equity interest in all multifamily investments.

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 first job was as an officer in the US Army. I think I made about $35K as a butter bar in the first-year post college and when I left active duty after seven years, I was up to about $65K as a Captain.

I then tried pharmaceutical sales for three years and probably averaged about $70K annually in that position.

I then spent the next seven years managing my father’s business during a time when my mother was severely impacted by Multiple Sclerosis, and he needed to care for her. I went through a divorce at this point and the Great Recession also hit in this period, so my income was all over the place and not significant to anything other than to survive.

After this turbulent period, I decided to make a total career shift and get my master’s degree in real estate while taking a position as an apartment community manager in order to learn the basics of property management. This only paid about $40K annually and I did it for a year and a half until I completed my degree and found the investment company I am currently with.

I started at the investment company as an analyst ($55K), then quickly moved to an asset/acquisition manager ($90-150K) and within the past year to the director level at my current salary.

That is a lot of boring detail, but I thought it was worth putting out there for two reasons: first, sticking with a profession and gaining that knowledge is probably more important to growing your income than anything early on, but second, even though you might make several career changes along the way, once you find the one that clicks you can still make it happen later in life. I was 40 when I started with my current employer.

What tips do you have for others who want to grow their career-related income?

Learn everything you can about your job and become invaluable to your employer.

This will prepare you for the opportunities that will open up along the way.

What’s your work-life balance look like?

Currently my work-life balance is pretty good, but earlier on there was quite a bit of travel involved and that was a lot harder to balance, especially as a single father.

I have some well-adjusted kids, so I must have made it work for us.

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?

Most of my additional income comes from rental income on my investments. I would say my company held investments produces about $350K annually and growing. This was developed from building my sweat equity doing apartment acquisitions and investing the cashflows back into new acquisitions each quarter, once all my consumer debt was paid off.

Syndication income is still small but about $10K annually. I have started to use some of the income from above to diversify into other investment types like industrial, self-storage and mobile home parks via syndicators. This is relatively new for me, so I don’t have any feedback yet.

Finally, my house rentals also provide about $25K in net income annually. I would like to build a small single family rental portfolio that would produce enough income to cover my annual spending expenses and give me some degree of control on liquidity of the assets if needed. I will be slowly building this to replace my salaried income.

SAVE

What is your annual spending?

My loose annual spending is around $150-160K.

I could easily tighten this up to under $120K if I wanted to and have minimal impact on my lifestyle.

What are the main categories (expenses) this spending breaks into?

• Housing (All mortgages, utilities, insurance, etc.) – $80K
• Food/Dining Out – $15K
• Auto (Insurance, gas, registrations, etc.) – $8K
• Medical/Life Insurance – $15K
• Cell phones, subscription services, etc. – $4K
• Gym memberships, personal trainer, misc memberships, etc. – $7K
• Various charities – $10K
• Travel – $10-25K (trying to do a larger family vacation annually now)

I should note that most of the categories above also include expenses for my father, who is now retired and living off Social Security. I made the decision to support his retirement since I am blessed with more than enough now and help him after he struggled his whole life to care for my ill mother. I am hoping he can enjoy this part of his life without worry.

Do you have a budget? If so, how do you implement it?

I do not keep a formal budget, but I do keep track of my spending since I decided to try and retire in the next several years.

I use Quicken financial to keep track of the income and expense categories.

My main goal is to live well within my W-2 income and not spend investment cashflow for now.

What percentage of your gross income do you save and how has that changed over time?

I am currently saving a little more than 60% of my gross income and reinvesting it.

This has changed over time as the amount of investment income has increased drastically in the past three to four years.

Previously I was more focused on paying down any consumer debt before savings. I was able to pay the last of that debt (student loans) off about five years ago and focus on reinvesting the savings at that point.

What’s your best tip for saving (accumulating) money?

I probably allow more lifestyle creep than I should today, but I felt comfortable enough to do so at a certain point. Once my consumer debt was paid off and my passive income was more than 100% of my earned income, I became a little looser with those standards.

I would say focus on building the earn portion while simultaneously paying down any debt will make you appreciate your earnings that much more and once your obligations are taken care of you will sock more of it away to watch compounding work its magic.

What’s your best tip for spending less money?

Stay single! Haha, I jest, but dating is expensive!

I will be honest, saving money is one of my weak spots. I always just determined I would need to make more and figured out how to do so.

I have driven my cars into the ground and try not to be too frivolous with big purchases and always shop for the best bargain…but when I want or need something, I am not afraid to spend the money either.

What is your favorite thing to spend money on/your secret splurge?

Right now it is both helping my father enjoy his retirement without worry and traveling for leisure.

Last year I rented a house for two weeks in Hawaii on the Big Island with a pool deck overlooking the ocean and had my entire family out for the trip. We had an amazing time, and I am going to try and do something similar every other year at least.

INVEST

What is your investment philosophy/plan?

I don’t really have a philosophy, but I have learned to invest in things that I have studied and understand will create a steady and predictable cashflow where I am comfortable with the risks.

This is why I like real estate, as I understand it through my own efforts, and I can pick and choose the risks and predictability based on that knowledge.

Plus, real estate offers many other forms of returns beyond cashflow that are what I consider additional safety nets.

What has been your best investment?

My best investment was in myself and my education (both formally and hours spent informally with books and internet sites like ESI and the MMM forums).

It put me into a position to be qualified and ready to take advantage of an opportunity with a young company that I could ride to the top with.

What has been your worst investment?

My worst investment was blindly giving money each month to an investment advisor right out of college and not understanding what they were selling me.

I lost about six years’ worth of monthly investments at a time when I made the least income in the dot com bust.

What’s been your overall return?

My current cashflows from investments are averaging slightly over 12% cash on cash.

I do not track the other returns from refinances, sales, etc., but just from the unrealized carried interest in my GP ownership I think they are more than good enough someday.

How often do you monitor/review your portfolio?

I review cash on cash returns quarterly but will do a more in-depth review annually of equity and carried interest kickers, that upcoming refinances and sales will impact as additional investment income.

NET WORTH

How did you accumulate your net worth?

The main driver of my net worth has been the willingness of my boss to “profit share” for lack of a better term.

Not only was I able to earn enough sweat equity via our apartment acquisitions, which I would in turn use to buy into more acquisitions, but I will greatly benefit someday on the back end with the carried interest kickers.

I would say that I am very fortunate with this arrangement, but I also know I put myself into this position and sought out the circumstances for which I was prepared for.

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?

I would say Earn is my top wealth builder mainly because I have never been afraid to put my nose to the grindstone and do whatever it took through hard work to get something done.

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

Instant family (was not prepared to take on a wife with a kid, then add another), divorce, family health crises, single parenthood, lack of spending discipline early in life, and too much consumer debt.

I basically got tired of struggling because I was not living with purpose, so I started searching for ways to change that, settled on a plan and began to work it with an end goal in mind.

What are you currently doing to maintain/grow your net worth?

I am currently trying to reinvest all proceeds back into my portfolio to allow compounding to work its magic and try and live within my W-2 income to do so.

Do you have a target net worth you are trying to attain?

I would like to hit a net worth goal of $20 million, with an annual cashflow of at least $1.2 million.

Right now about 65% of my current net worth is unrealized within the equity and carried interest kickers. This will start to pay out handsomely between 2029 to 2033 when we refinance or sell these investments.

I also think there is going to be a lot of opportunity in the real estate markets in the next several years, so between this and the refinance/sales it should be obtainable.

How old were you when you made your first million and have you had any significant behavior shifts since then?

I was 47 when I first hit a million dollars in face value of my invested equity. I probably hit a million earlier if I was to calculate the unrealized portions of my holdings, but I did not look at those segments then.

I abstained from spending a little more at that time, but once my cashflow was about 2.5x my salary I did open the floodgates a little. I would say this happened a couple of years after at about 49.

What personal habits and/or traits have you developed that have made you successful at growing your net worth?

Not being afraid of hard work and sticking through things when they are rough/rocky.

Also educating myself on the risks and making acceptable ones.

What money mistakes have you made along the way that others can learn from?

Too much consumer debt early in life and not starting savings earlier, especially an emergency fund.

What advice do you have for ESI Money readers on how to become wealthy?

Educate yourself on where you put your hard-earned money and trust but verify that it’s going how you intended.

FUTURE

What are your plans for the future regarding lifestyle?

I could retire comfortably now and had planned on being in the MMM Forums Retirement Class of 2024, but with coming market opportunities and my new role within our company, I am enjoying myself and might push this back to the class of 2025/2026 (I can already hear Nords in my ear about OMYS…)

Once I do retire from work, I still plan to manage a small portfolio of single-family homes that I can pass on to my daughter after teaching her how to manage and use it to grow wealth.

What are your retirement plans?

In addition to teaching my daughter the ropes of real estate investment and management, I would enjoy giving back some of my time and expertise with organizations like Habitat for Humanity and other groups trying to assist with housing on the lower income side.

I also would like to start educating myself on equities and dividend investing and build a portfolio in that asset class.

Oh, and I plan to travel as much as possible with friends and family…preferably to a lot of sunny beaches!

Are there any issues in retirement that concern you? If so, how are you planning to address them?

Healthcare is a concern.

I am working on regaining my health now, but I put a back seat on that during my career and I wish I had not.

While I am going to get there, the state of our healthcare system in America is truly horrific and probably not going to get better anytime soon. The costs can be outrageous, especially without an employer sponsored health plan, so I want to get as healthy as I can to avoid needing them any more than possible in my old age!

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

I was probably in my early 30s when I started to understand I had no idea what I was doing with my money.

I read four books that made it all click at that point:

• Rich Dad/Poor Dad 
• The Cashflow Quadrant
• The Millionaire Next Door
• The Richest Man in Babylon 

Those all helped put the pieces together in my mind.

Who inspired you to excel in life? Who are your heroes?

I would have to say my father was a huge inspiration to me. He dropped out of high school in the tenth grade, married my mom at 17 and had me at 18.

My whole life, I watched him work his rear end off in his career field as a dental technician and later business owner to provide all the things we needed and to make sure we had every opportunity in life. I am sure he is where I get my loyalty and willingness to work hard from.

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 mentioned a few above obviously, and those were very important in forming my understanding of how I needed to make money work for me and broadening my world view on money.

In addition, I will add:

• Total Money Makeover by Dave Ramsey. While Dave gets his deserved share of criticism, this book was very helpful to me at a certain stage in my life when I was still figuring out money and needed to learn how to get out of bad debt. It served its purpose getting me free from consumerism.
• The E-myth Revisited by Michael Gerber. This is not a money book, but a process book and while it is geared towards creating systems in your business, it was very helpful to me because I related the creation of systems to improving my earning potential and wealth building process. It also cemented home that my time was valuable and to use it wisely.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

I give sporadically to charities, and they are usually causes generated or supported by people close to me or that move me in some way.

I need to keep working on this muscle, because for a long time I put everything back into my own wealth creation and now that I have the means, I would like to spread some of it around.

This is an area that I plan to focus on more as time goes on.

Right now, I am starting with supporting my father in a worry free retirement.

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, I do plan to leave an inheritance.

Currently, I have a living trust, so that in my untimely demise, my father will be cared for during the rest of his life and provide any school tuition support for my daughter as well as a small allowance, then the remainder will pass to her (and some to her brother) once my father is gone.

However, I plan to avoid that scenario for some time, and hopefully during my remaining years I will have taught my daughter how to build and manage a smaller portfolio and use money wisely. I plan to build this portfolio with her and then slowly transition it over to her during my lifetime. Hopefully that means any remaining inheritance will just be over the top at for her at that point.

I also support my stepson as he builds his landscaping business and will leave him some inheritance to enjoy as well.

And finally, at some point I hope to be more involved with specific charities so that I can be a bigger benefactor to them as well.