Millionaire Interview Update 33

Today I have an update for you from a previous millionaire interview.

I’m letting three years pass from the initial interviews to the updates, so if you’ve been interviewed, I’ll be in touch. 😉

This update was submitted in March.

As usual, my questions are in bold italics and their responses follow…

OVERVIEW

How old are you?

My wife and I are both 57.

We celebrated our 34th wedding anniversary this last summer.

Do you have kids?

We have three daughters:

• 20 years old — Studying to be a CPA at University of Colorado (go Coach Prime)
• 23 years old — A labor and delivery nurse at a research hospital considering travel nursing
• 26 years old — Working with me part time and working on pursuing her MBA

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

Midwest suburban.

What was your original Millionaire Interview on ESI Money?

Millionaire Interview 139.

NET WORTH

What is your current net worth and how is that different than your original interview?

I will break this down by category so my explanations below will make more sense.

My numbers are 4 year changes since I do more detailed PFS statements at year end for my bank lenders. It’s also been a little over 3.5 years since my interview questions were answered.

FYI, numbers are in thousands…

• Spouse Roth IRA: $1,750 to $5,067, $3,316 gain or 189%
• My IRA: $500 to $471, $29 loss 5.8%
• Brokerage: $500 to $10,713, $10,212 change
• Cash: $1,000 to $1,544, $544 change
• Investment Real Estate: $30,000 to $31,710, $1,710 change
• Investment Debt: $19,000 to $20,349, $1,349 change
• Net Investment Real Estate: $11,000 to $11,361, $360 change
• Misc Partnerships: $1,400 to $1,400, no change
• Florida land and home building: $1,000 to $1,000, no change
• Home: $500 to $550, $50 gain or 10%
• Home debt: $175 to $127
• Lake House: $200 to $250
• Misc: $225 to $225
• Deferred taxes: $2,000 to $2,000 likely an increase here but not shown for this model for comparative purposes

Original total: $15,900 to $30,454, $14,554 change or 91.5%

In addition I would guess we paid $1,600 in taxes, $450 in donations and $1,400 in living expenses.

We had close to zero W2 or earned income and about $17,960 in total income. The total income includes change in asset values, real estate income, investment income, gains in real estate, land development, and home building in FL.

What happened along the way to make these changes?

By far the strongest positive was stock market returns from April 2020 to Dec 2021 that likely were in the $12 million range. I was pretty aggressive in buying very heavily into some beaten down stocks during Covid. I did have a substantial loss on GameStop in here so it should have been better.

By far the biggest negative was 2022 stock market returns in the negative $5 million range. I didn’t believe inflation was as bad as it was. I didn’t think the Fed would raise interest rates that much and I was so convinced of the fundamentals of the home building stocks and my timing was off.

Florida land development was a couple million positive. As part of an investment group we put land under contract to buy and do all engineering, entitlements, and sometimes improvements and sell lots to national homebuilders. It was a great run but we have not pursued any new deals since 2021 and we have a couple more deals that will close in 2023 or 2024. It’s a really long process to go through all needed engineering and entitlements to build a new housing subdivision.

Florida home building was about $1.5 to $2.0 million positive and we built and sold close to 50 homes. We have a few more to build and sell and a 28 lot townhome project we will likely build as rentals.

Real estate portfolio of investment property generated income in the $6 million range over 4 years.

Overall I was incredibly pleased with our four year numbers for income and change and net worth. I definitely made a huge number of mistakes but the positives substantially outweighed the negatives in three of the years.

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

My goals are about 8% to 10% return on assets in investment real estate with blended debt cost under 5% that enhances my return on equity.

My goals are 17% returns in stock market.

I target returns in excess of 20% on any money invested in land development or home building.

EARN

What is your job?

Investor in stocks, real estate and an occasional business.

I try to be an investor only and either have partners that do the vast majority of the work or professional management company for the income producing real estate.

Most of my time is spent reading and researching investments and monitoring economic conditions.

What is your annual income?

See above.

How has this changed since your last interview?

My average annual income/change in net worth jumped up since my last interview due to gains from stock investments during covid resulting in a much higher investment base in stocks now.

I also did well in investing in land development and home building in Florida. Overall I feel my investment real estate is not well positioned by asset class or location but it still did ok.

Have you added, grown, or lost any additional sources of income besides your career?

No.

SAVE

What is your annual spending and how has it changed since your interview?

It’s gone up and we will try to donate more and spend more moving forward.

My guess is we are in the $400k spending range with goals to increase that some with experiences and spending on the family.

We bought a new Jeep Wrangler and Acura MDX this year so spent some money on cars. Getting a new pickup in 2023. Likely have two weddings that we will pay for over the next couple years.

We are planning on donating far more and are starting to donate 10% of gains in stock market rather than realized income.

We will likely donate $200,000 to $300,000 this year, not included in our spend number.

Taxes in the $500,000 plus range, so all in pretty close to a million a year in grand total spend.

What happened along the way to make these changes?

I view Save for us as change in net worth for the year from investment earnings and change in investment asset values offset by all spending. That is because our earned income has been basically close to zero over the last 26 years since age 31 was the last time I worked for a company not owned by myself.

At 28, I was CFO for a company and was a very small owner in the business but more of my income came from my ownership than my W2.

I have made some really good investments and some really bad investments:

• My most recent bad investment was going neutral in the stock market by putting in a short position that was about equal to my long positions in Nov 2022. This has been a multi-million dollar mistake over the last three months.
• I made a bad short in GameStop that was $1.5 million in a couple days.
• I lost a huge amount of money in real estate investments in 2008 and had a lot of debt that could not be repaid.
• I made some great real estate development investments in 1999 to 2006 that were favorably impacted from leverage.
• I made some really good stock market investments in 2008 and 2009 and used margin to amplify the returns.
• I made some really good stock market investments in summer 2020 and used margin to amplify the returns.
• I made some great real estate investments in 2012 to 2015 buying bank owned quality buildings at a significant discount.
• I made some good real estate development investments in Florida over the last five year years.

My save and investment really are close to one category for me.

INVEST

What are your current investments and how have they changed over the years?

I started as a W2 employee at a big six firm as a CPA and spent most of my income but saved around 10% to 15%.

At 27, I became CFO of a start up company that grew to over $100 million in revenue and went public when I was 30. In combination between w2 income from the job, bonuses and stock, we created a net worth of just over $1 million by 30.

I left that company and finished my MBA and started an IT consulting firm and became a partner in a commercial real estate development company.

From 30 to 38, I created about a $12 million net worth and then cratered it back to under about a million in the 2008 downturn.

From 2009 to 2018, it was a rebuild from investing in the stock market in 2008 to 2010 and then in purchasing bank owned commercial real estate.

Our net worth by the end of 2018 had eclipsed our previous high net worth.

What happened along the way to make these changes?

I made a lot of really good career and investment choices and had an incredible mentor.

I could see the downturn coming in 2008 and could not convince my partners to sell and move to the sidelines. It’s a horrible idea to personally guarantee debt that you don’t control when the property is sold.

In 2008 with the downturn, one of my partners and myself spent hundreds of hours trying to figure out what to do to rebuild our net worth. We came up with the idea to buy a million shares of GGP at $.27 a share. We knew their real estate portfolio was still pretty good and the stock should have been worth at least 10x that number.

I made some money buying and selling it and then got nervous because they were going to go bankrupt and it is really, really rare for common shareholders to make it through a bankruptcy. We knew the bankruptcy was needed to buy time to restructure and we felt all the debt could be repaid and there was millions in equity value. I got nervous and sold the entire million shares at $.44 a share and it never dropped below that level and they came out of bankruptcy and the stock was $20 plus a share within a couple years. That was my single biggest financial mistake ever.

I made a lot of other good decisions in buying some other stocks but at that time all you needed to do was be a buyer while others were selling.

Once banks started selling off commercial properties at substantial discounts, I partnered with my mentor and we started building a portfolio together. I spent a lot of time looking in Florida and bought one investment down there but most of what I bought was in the Midwest in the crappiest state in the US for investing. The investments worked out fine but the Florida ones would have been so much better for the long term. We also should have invested in residential rather than commercial.

Life is full of making mistakes and making some good decisions.

A great quote is from Teddy Roosevelt:

It is not the critic that counts, not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood who strives valiantly; who errs, who comes up short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory or defeat.

MISCELLANEOUS

Overall, what’s better and what’s worse since your last interview?

My dedication to family and faith has improved.

I truly treasured the time we were able to spend during the covid shutdown as a family playing games, making dinners, reading, doing puzzles, breaking all kinds of rules to spend time with friends, watching church on TV together, and enjoying time at the lake with our extended lake family.

Every single time I go through a downturn in my life I truly see the hand of God helping pick me up and put me back on the battlefield in a new direction.

I am involved with a prison ministry, Kairos, and the changes I see in the lives of hardened criminals is nothing short of a miracle.

What are your plans for the future?

I really want to travel more, there are so many places to see around the world.

I definitely would love to sell my Midwest assets and 1031 them into new rental residential properties in Florida.

I want to be a mentor to others that are interested in fields that I have expertise in.

Hopefully someday be a grandparent.

Spend time with my wife, kids and friends and treat everyday as the new gift it is.

Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?

For someone young and starting a career to not be afraid of risks.

For those in retirement or close to retirement a Buffett quote is best:

“The first rule of an investment is don’t lose money and the second rule of an investment is don’t forget the first rule.”