Millionaire Interview 416, Part 2

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 May.

It’s a long one (which I love!) so I’m breaking it into two separate posts. If you missed part one, you can catch up by reading Millionaire Interview 416.

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

NET WORTH

How did you accumulate your net worth?

I wrote the story of my life (almost), but it got too long. I will try to sum up but will leave the long story as well in case somebody is interested to learn more details.

The Summary

• Get a job, get comfortable with income level, realize you have some extra.
• Buy a house on the lowest price range but in a good location, have a kid, start 529 with 3k, change employer for better options and growth potential.
• Advance at work, maximize 401k, HSA, ESPP, as compensation grows, buy another house in even better location (good schools) with side income potential (MIL), rent one of the houses to cover majority of the mortgage.
• Divorce with 50/50 custody, split houses start on your own, rent MIL for extra income.
• Get comfortable in new settings, as compensation growth invest in child education, traveling, hobbies, start side gigs, explore your interests, invest in personal life, friendship.
• Get a second house with additional living space in a good tourist destination and where you want to spend time on vacation and in retirement with good long term and short-term rent potential. Rent the main house long term, keep guest house for your visits.
• Open HELOC for primary residence and vacation home up to a maximum.
• After few years of renting vacation house long term, convert to short-term rental.
• As compensation at work grows and work gets crazier, buy a small cabin in the woods for cash within a 2 hour drive to recharge on the weekends.
• As the short term rental operation brings more income, and the management team is in place, buy another house in the same location to run two short term rentals. Use cash from HELOC to give a cash offer to win in the extreme sellers’ market.
• As house prices grow, go for cash out refinance to pay back HELOC.
• As STR operation brings cash flow invest it into property improvements and save the rest.
• With a child reaching college age, college cost estimates are known and child going for the college housing, get a smaller place (condo) in premium location, rent out the old house (now there are two paying tenants MIL and main portion).
• Pivotal point in life, empty nest, losing people from close circle, work not satisfying, go for drastic change, depart from the main job, scale back, go for seasonal job in Alaska for experience, spend the rest of the year traveling or staying in the guest house. Meanwhile the first house and condo are rented long-term covering expenses and bringing around 1k monthly cash flow, STR operations also bring income.
• Sell former primary residence (house with MIL) to rebalance assets and have more money as liquid cash and investment to subsidize one third of annual expenses.

Longer version below:

We came to the US in May 2000 with 10k in cash not having any jobs or a place to stay. In a month by the time we started our first job, we had only 1k left in the bank account after securing the rent, buying a used car, computer and basic clothes and furniture.

I remember we were sleeping on the floor as we couldn’t justify paying so much for the mattress. Our first 1 br apartment cost $780 and it felt like a luxury and making about 75k for both of us we had enough for day-to-day expenses, settling in a new place and sending some home.

By the Fall of 2001 we were looking to buy our first house as our son was due in Jan 2002. Buying the house with monthly payments of 1800 per month was a big increase to our expenses
and it got even more stressful when childcare costs started to pile up.

For a few years we could not save much, except I started 529 for our son and we contributed 3k during his first year, then stopped. When our son was 3 yo I joined a big high-tech company and got almost 30k in salary increase – that was a great boost.

I started adding money to 401k (but only up to a match) and used ESPP to get a 10% discount – I was holding those only short term, as I was counting on those money and they were my vacation fund.

In a year I started talks trying to convince my husband to buy another house in a better school district so our son would have access to better schools. It was not easy to convince him, as he
didn’t want to sell the old house and didn’t want to deal with the tenants, but he finally agreed.

During those times it became clear that we have a very different risk tolerance and outlook in life and seeds or thinking about the divorce started to grow.

Anyway in 2006 I found a house in the good school district very close to our first house. I picked the house with a small 1br Mother-in-Law apartment, so there would be a second living space for additional income to offset the expenses.

I found renters and we were renting for a couple of years. When our son turned 7 yo we divorced with 50-50 custody and split the houses – our incomes were about the same although mine grew faster, still we were considered as equal contributors, and nobody had to pay anybody alimony or child support.

We called the appraisals, refinanced both houses and divided the equity. I ended up with a larger loan and spent equity from the first house on home improvements. I had a good trajectory at my new job and was optimistic that I could pull it off by myself.

It set me back on one hand but enabled me to do more things I wanted to do on the other, and I felt like I got wings. I moved to that second house and started renting 650 sqft 1br MIL for extra income – the rent price gradually increased from $600 in 2006 to $1400 in 2023.

The old house also had MIL potential, but my ex didn’t want to share the house with anybody else. At some point I refinanced again to 15 years fixed to have a lower rate and contribute more to the principle.

I knew I could just add principal to the 30 years mortgage but wasn’t disciplined enough so wanted to have it as a requirement.

Another 6 years passed, during that time my career was going great, and I got several promotions, I started using 401k to the max, HSA, and tried to not sell ESPP right away, although I still had to do it as I also started to spend more money on traveling including international travel and often took my son with me.

I also got a long-term boyfriend who moved in with me and paid me $800 per month towards housing expenses. I also started a food truck business as a side gig and was running it in parallel with my pretty demanding full-time job.

I was very busy, some days looked like going to Cash and Carry at 5 am, then to my main job from 8 am to 5 pm and serving food at the concert series in the evening and cleaning up till
midnight, but surprisingly my performance at my main job was considered stellar and I learned that it’s not about the time, it about efficiency, passion, happiness and energy level.

I can’t believe I was able to do all those things all at once, but I did.

During my travels I fell in love with the American Southwest and started to think about having a second base/vacation house for myself with the idea to live there in retirement and/or use it as
a Bed and Breakfast running it myself greeting people from all over the world. That was before AirBnB got big. 

So in 2013 I got a house in Sedona which was surprisingly a short sale (yes the house condition was not that great, but it had good bones and amazing views, there was also a small guest
house (casita more like a small studio). 

For the first 4 years I was renting the main house long term and used casita if I had to stay during short vacations.

The whole property required a lot of work, and it became a pretty serious project with constant expenses, but they were all to achieve the goal to bring it up to a modern standards and open someday a nice BnB but my compensation grew as well so I had money to work on house improvements, although I didn’t have much to save or put into a brokerage account.

At some point when I felt I’m getting closer to start running that property as BnB (and AirBnB was a thing by then) I did a cash out refinance on my primary house going back from 15 years
mortgage to 30 years and used the cash to pay off my Sedona property. It just felt great to have it paid off and count most of the revenue as a source of income, but I still had quite a lot of
expenses and used the profit for the house improvement projects.

In 2018 I officially switched from long term rental to short term rental and my long-term boyfriend (by that time we split but stayed in good relationships) moved to the casita and was managing like a host living on site.

Meanwhile, house prices in Seattle grew quite a lot, and the value of the house in Sedona grew quite well, I opened HELOC lines on both properties to have access to some cash in case I want to buy another property or do some switch without selling and buying at the same time.

Sometime in 2017 I started getting tired of the Seattle area’s quick growth and was looking for a weekend refuge – I found an interesting opportunity to buy a small cabin in an RV-like community in North Cascades foothills.

I spent 60k paying cash and that cabin served me well as an escape from the busy high-tech driven places into more rural areas with a better sense of community.’

My son was in high school already and had a good plan on how to minimize college expenses by attending a special program that lets you study last two years of high school in college and if you got an associate degree, it would cover your high school diploma and give you college credits.

By the time he finished that program he got his high school diploma covered and earned 89 credits that counted towards his bachelor’s degree. He had excellent grades 4.0 and was accepted as direct admission to a prestigious program in in-state UW (University of Washington).

At that time I was pretty confident he’s on a good track for independence and it was a relief to find out that college won’t be as expensive as I was afraid. That 3k in 529 grew to 8k and was enough to cover his tuition for one year, and because of covid he studied remotely living at home, so no housing expenses.

We only had to pay four quarters of education out of pocket, which we split with my ex-husband 50/50 and four quarters of housing (so our son would have true college life experience) which we split among three of us.

My AirBnB business in Sedona was going pretty well and with my son going to college and getting more independent I realized I don’t need to stay in the house, so I found a nice 2 be condo in an excellent premium location with access to the waterfront. I kept my old house as a rental.

The same year I also got even more ambitious and decided to expand on my Sedona presence as I had a good team in place and I was managing reservation, marketing, communication aspects with my ex-BF living in Sedona.

Having HELOC opened against my two properties helped to buy another property paying cash (that was a great advantage during the seller’s market). We decided to buy that house together with my ex-BF/current property manager with me paying ⅔ and him paying ⅓.

The years of 2000 and 2001 were excellent for AirBnB revenue, but unfortunately my ex-BF learned he had 4th stage cancer and passed away in 3 months. That was very tragic and the whole concept of managing had to be changed.

Now I had to rely on somebody else and nobody did the job as well, plus it cost more money. In addition, AirBnB business slowed down in the second half of 2022 and even more in 2023.

To simplify the management I offered my ex BFs son to buy out his share that he got as an inheritance from his dad. The house increased in value, and it was 30% more than originally, but I was able to pull it off, again using HELOC, I also sold some stocks.

The rates were still good, and I was very fortunate to be able to pull a cash out refinance to return money to HELOC paying full balance and getting a mortgage at 3.5% – which was a great rate for the investment property and cash out refi.

At about the same time my career at my main job stalled, mainly because it wasn’t as exciting as before and I felt I was ready for something else. A lot of things changed in the field, and it felt like not the same job I was excited to do.

2021 was a turning point with my ex-BF / AirBnB manager passing away, my Mom passing away in another country, my son moving out to college housing – all of this made me realize I’m ready for some major change.

I wasn’t sure what exactly I would do, my initial plan was to spend more time in my country of origin, but the senseless war that started and changed everything broke my plans. It felt like I had roadblocks in all directions.

One day while procrastinating to start my remote work I just was following some weird impulse and decided to check coolworks.com – the site where you can find seasonal jobs in some cool places. At that time I was on a short trip to Alaska to see the Ice Sculpture Festival and I decided to check what kind of jobs are available in Alaska.

After eliminating housekeeping and bartender/waitress jobs I saw two openings that sounded like something I could do – data entry/customer service at the company that does scenic flights and a photo tour guide in one of the cruise ports. The data entry job was already taken, but I got a response for the photo tour guide job and in 3 days I signed the contract ready to jump in.

I asked for unpaid leave at my main job and combining it with my vacations I could get 4 months off. I was able to rent my condo with rent covering expenses and dived into the new life.

The new seasonal job was very hard and didn’t pay well, but it gave me a new level of satisfaction and was exactly what I needed.

Ironically as of summer 2022, I was the owner of 5 properties, had three long term renters, ran two houses as AirBnB, had my own private cabin, and with that I was living in a small very basic house sharing it with two other people, paying $500 for a room, sharing a bathroom with another guy, like back to the college life.

Surprisingly it still felt better than my stalled life in WA in waterfront condo.

After coming back from the unpaid leave, I knew for sure I didn’t want to continue my career in high-tech and started preparing my departure.

By 2023 I had 900k in 401k, 60k in HSA and about 250k in my company stocks. The layoffs of 2023 helped to depart with some severance, which helped to cover some losses I got from my second AirBnB house that has mortgage payments.

If I wouldn’t be part of the layoffs I still would quit as I was planning to go for another season in Alaska.

I went for another summer in Alaska and it was even better than the first. My new life plan was to keep working seasonally in Alaska – while this job doesn’t pay as much I also don’t spend as much so I got 4 – 5 months expenses covered.

The money for the rest of the year would come from AirBnB operations.

I also had a plan to sell the first house in WA (the one with MIL) – I did it recently and it added a nice chunk of cash that I can use and that makes my plan manageable.

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?

Honestly, I’m not sure I was applying it, at least intentionally, I think my strategy is to make the right choices at the right time, know what’s important for me, think about the future, while not forgetting about today.

Actually focus more on living in present to maximize the energy and motivation, and that’s what brings success. Have plan A, B and C, be able to see the opportunities and go for it, be ok with scaling back if needed, be adaptable and curious. 

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

Divorce was a bump and financial step back, but it accelerated growth on my own path.

Businesses have cycles, and my AirBnB went through a rapid growth, then over-saturation and now facing more regulations, so I need to be able to reassess potential income. Economic cycles can make impacts.

I just sold my house, and the times are really weird – the prices fall in some areas and still crazy in others and there is a lot of “acting out of fear” on the market – either of missing out, or hyperinflation or losing jobs and the economy going down.

I’m happy I sold, but maybe I could get more money if I waited longer, but I’m fine with the result.

I’m not sure if there were any real bumps, as I didn’t have a goal to be a millionaire, also life has cycles with some periods more challenging financially, like daycare costs, college costs, healthcare costs.

I lost some money due to bad advice from real estate agents, or incompetent contractors, but I’d say it’s minor, just regroup, and keep going. 

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

Index funds for self-managed investments, still aggressive on 401k, will start 401k to Roth IRA conversion.

I set aside a portion for active management which comes with overall financial planning and advisor, hope it will be useful.

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

No, I plan to use money for what I need, if all I have to leave for my son is a paid off house generating cash flow, I’ll be fine with it.

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

It probably became a millionaire due to rising house prices and growing equity, but it didn’t feel like real money, as I didn’t plan to sell my primary and vacation houses.

I think my 401k reached 1 million when I was 50, and overall investment (401k, Brokerage and HSA) maybe when I was 47 yo.

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

I’ll repeat one of the questions above.

I think my strategy is to make right choices at right time, know what’s important for me, think about the future, but not at expense of today, focus more on living in present to maximize the energy and motivation, and that’s what brings success, have plan A, B and C, be opportunistic, take risks, be ok with scaling back if needed, be adaptable and curious. 

Departing a long-term relationship on good terms – that paid off big during the 50/50 parenting plan and helping our son not have a trauma from parents’ divorce.

And later my ex-BF was a great manager for my short-term rental operation, we still considered each other as a family.

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

Double check what realtors tell you, especially when it comes to taxes.

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

Educate yourself about the tax code and know how to plan a tax strategy. 

Consider your mental health, level of happiness, free time as an asset too, I’d add those to “wealth” definition.

Try to be able to live “small” if needed without feeling restrained, there are ways to spend less without feeling like you have to save all the time. 

Examples from my experience – a seasonal job that you like will keep you busy, very basic options prevent from spending money on stuff you don’t need, and feeling tired physically is better than feeling empty emotionally.

When you tired physically a glass of beer or wine or just being able to sit or lay down comfortably feels like a luxury, but if you drained emotionally you go for luxury vacation, fancy clothes or expensive car.

FUTURE

What are your plans for the future regarding lifestyle?

I consider myself retired even if still work seasonally. I spend summers working in Alaska, if I decide to stop that I can spend summers in the Pacific Northwest in my paid off cabin or traveling.

I can spend winters in my guest house in Sedona while still running AirBnB out of the main house. I might go for a part time job in the winter too (I wanted to explore the option to work in the winery a few times a week, I think it can be fun).

I also want to do more traveling that has a sense of community, getting more experienced in scuba or free diving, maybe learning kite surfing, becoming a part of the international community, traveling on my own visiting friends around the country and the world.

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

Long term care costs.

I hope I’ll figure something out to avoid paying 12k a month in current dollars, maybe doing it in a cheaper country would be an option, as at that time I won’t care where I am, and I don’t want my family to remember me in that state spending fortune that they could find a better use for.

MISCELLANEOUS

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

I wasn’t interested that much, but I wanted to know what’s coming in terms of taxes, and I like to use the opportunities I have, so had to learn about what’s available (e.g. 401k, HSA, Roth, ESPP etc).

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

I don’t have a particular hero, but there are many people from everyday life that I feel inspired by, mostly those are laid back people whose life may look like a lot of hardship, but they look happy and content with it.

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 was reading some, but I can’t remember the names, I was buying and reading How To books at certain points to get more knowledge or motivation. ]

NOLO books were good on buying a property, taxes and small business expenses.

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

I don’t donate money, but I do informal coaching and hopefully can give people motivation and inspiration.

I believe motivation and inspiration will take you further than money, that is what will make you successful and will bring money if that’s the measure of success. I’m happy to teach, consult, give advice etc.

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?

If I can leave my son a paid off house generating cash flow (already have one like that) I’ll be fine, I’ll use the rest for myself as needed, and if I leave extra than great. But I plan to start giving him some chunks annually within gift allowances.

That’s part of my plan, but I’ll finalize it by the end of the year. I feel I’m still in transition to being retired so it’s a lot of adjustments.