Update: The Giving Challenge

A few weeks ago, I challenged my readers and the personal finance/FIRE blogging community to assist with the Hurricane Harvey recovery efforts through The Giving Challenge.

What Was the Giving Challenge?

I wanted our generally privilege community to stop focusing on high savings rates, real estate investing and passive income for a moment. Instead, I wanted our community to focus on giving back and helping those in need.

Asking people to donate is simply not enough. So, I offered major incentives to entice people to donate. How?

First off, I offered to match up donations dollar for dollar up to $1,000/day for five days. If we did not reach $1,000 at the end of each day the challenge would be over.

Second, in addition to matching donations, my employer would also match any donation I made. Now every donation people submitted would be matched 2:1.

A small $5 donation would turn into $15 of aid for the victims of Hurricane Harvey. In some instances the donations we received were also matched by donors’ employers. This means a in some instances a donation of $5 turned into $20.

Sounds a lot like compound interest, right?

How did it go?

Donations were slow at first. Disappointment sank in with the lack of interest or people not sharing their donations during the first few hours of the Giving Challenge.

However, the word slowly started to spread and donations picked up over time. After five hours, The Giving Challenge raised over $600 and we hit the first $1,000 mark in less than 12 hours.

This was a good sign. Reaching $1,000 also meant that the challenge would make it to at least day 2.

People began sharing the Giving Challenge with others and the donations started to flood in. Some individuals were very generous and gave large sums of money. While others sent in a note saying that they could only spare $5 or $10 but still wanted to help those in need. Both types of donations were equally important.

The challenge was very successful. Thanks to the generous donations, we were able to max out all 5 days. These acts of kindness gave me more faith in our society. While the news displays nothing but chaos, it’s refreshing to see selfless and caring acts from dozens of donors.

In summary, we received $5,056.92 in donations. Of those donations, other employers matched $232.00. I matched the $5,000.00 as agreed and my employer matched my donation with $5,000.00.

Thanks to everyones efforts and caring donations, we raised $15,288.92 for the recovery efforts in Houston and the other areas impacted by Hurricane Harvey.

P.S. – here is proof of my donation:

Keeping the Party Going

As you may know, I have worked on several houses both for myself and with Habitat for Humanity. Several homes in the Gulf Coast region are going to need extensive repairs. This will require significant amounts of time and money.

With that said, I would love to set up a volunteer trip and help restore a few homes. If anyone is interested in taking a week off to volunteer with such work, please let me know. It would be awesome to get one or multiple groups together.

Landlord Report – August 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – August 2017

landlord

This month was rather uneventful. August marked another perfect month (a month with no expenses or repairs) for my rental portfolio.

The table below outlines all my income and expenses for the past month month:

guy on fire

As you can see, August was a great month for my rental property portfolio. Rental property #1 and rental property #2 had perfect months. Rental property #3 also had a perfect month; the expense item is my share of the utilities for the property.

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $381.76 and I spent 5 minutes of my time collecting the rent. How? Well, I had dinner at a restaurant down the street and stopped by on my way home. My mortgage debt dropped by $701.94 from my monthly mortgage payment. When considering principal reduction, I came out ahead $1,083.70; not bad for 5 minutes of time.

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you might think. Next month will require a bit of yard work; thankfully the weather will be mild.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! July 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $714.11. When factoring paying down my debt, rental property #2 made me $2,305.54.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the second full month for rental property #3. The utilities were much higher this month and I am hoping it was an anomaly.

One of the units utilities are included in their rent and I pay the water bill for the entire building. This expense costs me $270.85.

In summary, rental property #3 – earned $1,554.07 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $401.51. When factoring paying down my debt, I earned $1,946.58

Portfolio Summary

In summary, I spent less than 20 minutes of my time maintaining my portfolio of rental properties. Rental property #3 utility bills will be interesting to observe. I decided to have one unit with utilities included. The other tenant pays for their utilities (except water). This experiment may be a bit costly but we shall see.

In July, my rental properties provided me with $3,518.26 in cash flow. There is nothing like (mostly) passive income.  My mortgage debt decreased $1,817.56 last month which further increased my net worth. Factoring in repayment of debt and cash flow, my rental properties earned me $5,335.82. What else can you spend 20 minutes and make this kind of income? Being a landlord sounds pretty good, right?

The Giving Challenge: Making Your Donation Go Further

I would like to take a moment and step off my soapbox where I normally shout about dividends, passive income and why being a landlord is awesome.

Rather, I would like to use this post and platform to raise awareness and discuss a humanitarian issue. No, I am not about to go on a political rant. I can promise you that I never will either.

As I am sure you are aware of by now, the Gulf Coast region of Texas is in a state of emergency. Hurricane Harvey dumped record amounts of rainfall on the gulf coast, left a path of destruction with hurricane strength wind, and flooded one of the most populated cities in America.

It’s still too early to know the true damage caused by this powerful storm, however it’s safe to say that thousands upon thousands of men, women and children are in need of aid. Countless people are without food, shelter, water or dry and clean clothes. People’s entire lives have been washed away by this storm.

The victims of Hurricane Harvey need our help.

The Giving Challenge

All too often in the personal finance, financial independence, and investing blogosphere we get lost talking about money and reaching our goals. What we do not discuss often enough is our privilege and giving back to society. I am not going to rant on about how great we have it; you should already know that by now.

This is a public challenge to all of you (bloggers and readers alike) to donate to Hurricane Harvey relief efforts. Moreover, I am going to incentivize all of you to donate with this giving challenge.

But what do I mean by this?

I am going to match all of your donations dollar for dollar up to $1,000 for the next 24 hours. If we reach this lofty goal, I will extend the challenge for another day and another $1,000. Given that I am not Warren Buffet or Mark Cuban this challenge will be capped at $5,000 (of 5 days of giving).

BONUS – my employer will match my contribution dollar for dollar. SO your contribution will actually be matched $2 for $1. If your employer matches donations (many of them do) your contributions will be matched $3 to $1.

What you need to do

Ok, so now that I have convinced you to donate (if you are not convinced, go turn on the news for 5 minutes then come back) you are probably asking yourself what you need to have your donation matched?

 

  1. Select a creditable charity or nonprofit.

The Consumer Reports recommend the following: https://www.consumerreports.org/charitable-donations/best-ways-to-help-victims-of-hurricane-harvey/

NPR’s advice for donating: http://www.npr.org/sections/thetwo-way/2017/08/28/546745827/looking-to-help-those-affected-by-harvey-here-s-a-list

  1. Check to see if your employer will match your donation (many will; this will further increase our giving power)
  2. Donate to the charity.
  3. Email me (guyonfire.us@gmail.com) proof of your donation and that it has taken place after posting this article. Please let me know if you would like to remain anonymous; I plan to give a big shout out to all those who donate.
  4. Share this post with as many people possible

 

Let’s get out there and help those in need! Together we can all achieve more. Every bit helps. Your $5 donation can turn into $15-20.

Buying Back Time Through Financial Independence

Earlier this week I met with a client at their office. Two of my co-workers accompanied me in an effort to grow the relationship between our firms.

After the meeting, my two co-workers and I visited the Starbucks next door. While enjoying overpriced iced coffees (thanks corporate expense account) we debriefed the meeting and shot the breeze. We all agreed the meeting went well and then the conversation transitioned to careers.

My boss, who is a 58 year old male, joined our firm just over a year ago; he started two months before me. Prior to joining our company, he worked for two other companies; both careers lasted 10 years. His new ’10-year plan’ includes staying at our company for a decade and retiring at the ripe age of 68.

The other co-worker is a lady who joined our company a month ago. She is in her late 40s and sees herself working another 20 years. She dragged on for about 5 minutes outlining all of her wonderful accomplishments in her career; she thinks very highly of herself.

Out of the blue, she turned to me and said, “You probably have 40 years left in your career.” The statement completely caught me off guard and… well… honestly scared the living hell out of me. I am 27 and will be 67 in 40 years. No thanks.

I cannot imagine working another 40 years when I am 4 years (or less) away from financial independence. In my mind, the worst case scenario is working another 10 years which means her prediction would be off by 30 years.

Her comments really got me thinking… Why do we choose Financial Independence (FI)? And, how much time does FI save us?

Let’s start with the former… but please stick around for the latter, you are going to like what I have to share (hint: it’s really cool).

Why do we choose FI?

Recently, I posted a poll on twitter asking the twitterverse why we choose FI (see below for results)? The responses were entertaining and enjoyable to read.

Two poll options received an overwhelming majority of the vote. The options ‘spend more time with family & friends’ and ‘pursue other interests’ combined for 84%.

The common theme with both these options… We value our time and desire flexibility and freedom to do what we enjoy.

I am pretty sure no one on their death bed ever said, “gee, I wish I spent more time working.” – IF they did, I feel sorry for them.

Zero Day Finance provided great feedback:

Your Average Dough – enjoys time her family & friends but its more than that. She wants her free time too. Bonus, there is nothing average about her; she runs a great blog.

Steve from steveonomics – his big bucket list is his motivator. I share this view as well. Many of my bucket list items are on hold as my 9-5 gets in the way.

We do not choose financial independence because we are lazy or entitled. Some of us do in fact hate our jobs (I am one of them), but many of jobs they enjoy… just not as much as the freedom on FI.

Choosing financial independence its much more than not wanting to work. Financial independence removes monetary needs from decision makings and allows us to focus on happiness.

Debts to Riches – provided great insight.

If I were to ask – “If you could do anything for the next 8 hours that brings you joy and happiness, what would you do?” –  I am almost certain work would not make the list of activities.

Better yet – if you had one last day to live and you could do anything you wanted with unlimited resources at your disposal, what would you do? Something tells me those TPS reports would not make the list.

Value Investor understands the value of short term pain for long term gain. He is willing to put the time in upfront to buy back decades of his life.

Digressing back to time…

Buying Back Time

So… How much time does FI save us? Obviously it’s not just working 20, 30, or 40 years since we all are afforded the *luxury* of nights, weekends and holidays.

According to multiple government reports, the average American work year consists of 2,087 hours. If my co-worker’s assumptions are correct, I have 83,480 hours of work in my future (2,087 x 40 = 83,480)

There are 8,760 hours in a year (24 hours * 365 days = 8,760). Still assuming her assumptions are correct, my career will consume 9 and half full years of my life (83,480 / 8,760 = 9.5 years).

Being trapped on the hamster wheel and wasting away 9 and half years of my life in a cubicle is not an option.

I can think of 100 ways to better spend my time. Volunteering, traveling and time with loved ones are the first three that come to my mind; maybe not in that order.

Time Vs. Money

In life there are two limiting factors to most everything, time and money. Money is my second most valuable resource. In modern society money serves as the medium of exchange.

Before there was money, people were stuck bartering for goods. Below is a quick story to demonstrate why having a medium of exchange is beneficial.

Imagine, I am a farmer that grows corn.  Now imagine that I have two neighbors, Bob and Tom.

Bob and Tom raise hogs and make shoes, respectively.

Trading with Bob is great. I provide him with three baskets of corn so that he can feed his hogs. In return he provides me with 5lbs of bacon. Who doesn’t love bacon?

One day while walking back from Bob’s house, I noticed the sole of my shoe gave out. Damn – now I need a new pair of shoes.

So, I walked over to Tom’s house hoping to trade some fresh corn for a new pair of shoes.

Tom said, “I do not want your stinkin’ corn. I like bacon and pork chops!”

Well, this sucks…. So I had to go all the way back to Bob’s house to trade corn for bacon. Then go back to Tom’s house to trade bacon for shoes.

BUT, by the time I got back to Tom’s house he no longer wanted bacon.

Tom said, “Bob was over here early to buy his family shoes. I have no need for bacon. Now I want peaches.”

You gotta be kidding me. The only person who grows peaches is three towns over….

See how annoying bartering is? Having a medium of exchange simplifies life. Money saves everyone time and energy.

Finally, there is no shortage of money or limitations to how much money an individual can have. I can make millions, loose it all and make it back again. Heck, there are stories out there of people doing this several times.

Time, however, is the most precious and FINITE resource we have. There is absolutely NO WAY TO GET MORE TIME. If you have a way to make more time (you don’t) please email me; I will make it worth your time.

Introducing the FI Time Saving Calculator

Without further ado, I would like to introduce the FI Time Saving Calculator (also see below).

Let’s assume the average American plans to retire at 67. Some retire earlier than this while others are less fortunate and may need to work past the age of 67. Some are actually crazy enough to WANT to work past age 67 (read more below).

For every decade of retiring early, FI buys you back 20,870 hours. This would be 870 days, or 124 weeks or 2.4 years.

Every year of retiring early provides 12.4 weeks of time that will not be spent in an office or working for the man. This is 1/4 of a year or about 3 FULL MONTHS.

I hope this calculator provides a new way to look at FI and helps you find your why.

This exercise really changed my perspective on FI. My career  has never provided enjoyment, purpose or fulfillment. Rather, I am happiest when I am helping others, enjoying nature, spending time with loved ones and exploring the world.

I look forward to reaching FI and buying back my time so that I can pursue what really matters to me in life.

What are your reasons for choosing FI? How much time will FI save you?Did you realize how much time you will buy back through financial independence? Do you know your why and how you will spend your time? Please discuss by leaving a comment.

Solidifying and Automating My Way to Financial Independence

Recently, I shared how I went from a negative net worth to over $500k in 4 years. The past four years have provided a great foundation for financial independence. However, I still need to think through a few items and finalize my plan. My rental properties provide great monthly income but I will need more than rental income to leave Corporate America in the dust.

The following actions will get me to my goal retiring early:

  • Automate investing
  • Increase dividend income
  • Increase assets in non-retirement accounts
  • Buy one more rental property
  • Budget & Spending
  • Debt Reduction
  • Cash buffer

Automation

Like a car on cruise control I want to automate my path to financial independence. Paying bills sucks. In fact, I have over 20 bills I must pay every month. Going forward I want to will automate as much of my life as possible. This will free up more of my time, reduce stress, and eliminate the possibility of late payments.

Likewise, I also want to automate a portion of my investing. Moving forward, I will be opening up a new brokerage account. A portion of every paycheck will be directly deposited into this account. The funds will go towards weekly purchases of a low-cost index fund.

Also, I am not giving up on dividends. This strategy will allow me to dollar cost average into the market AND increase my dividend income (index funds pays dividends).

I am fortunate to save a lot of cash every month, however, I am not comfortable with so much cash sitting idle. These funds are not providing a return. I plan purchase index funds while saving for another investment property.

The brokerage account will be with Vanguard. I looked at several options and all the major brokerage firms offer low cost index funds. However, Vanguard does not charge you a commission when you buy their funds. Vanguard’s funds also offer one of the lowest expense ratios to manage the fund. This will save me hundreds or even thousands of dollars over the next few years.

Increasing Dividends & Non-Retirement Account Investments

Dividends will provide 25-33% of my income when I achieve FIRE. Ideally, I would like an average of $1,500/month in dividend income.

Most of my stocks and index funds are in retirement accounts (Roth IRA & 401K). There are ways to access these funds early, however, I would like to increase my non-retirement account balances and dividend income.

As previously mentioned, this will be accomplished by regularly buying index funds. Additionally, I will continue to buy undervalued dividend growth stocks when the opportunity presents itself. Divided growth stocks provide a great hedge against inflation since most dividends grow faster than the rate of inflation.

Buying One More Rental Property

My rental property portfolio currently consists of three properties. The portfolio provides quality passive income which is evident by last month’s Landlord Report.  However, I would like to purchase an additional rental property before stepping away from my day job. 

Why?

My first property was an accidental rental. I bought the place to keep my cost of living low and to house hack with roommates; they paid most of my bills. The cash flow from rental property #1 is not very strong. The other two properties provide great cash flow and were bought with the intension of being rental properties.

Adding one more property with strong cash flow will greatly improve my (mostly) passive income. In fact, the cash flow from an extra property will likely help me hit my estimated FIRE number and cover most (all?) of my annual expenses.

Also, there is a good chance rental property #1 will not be rented once I go FIRE (more on that below).

Solidifying a budget/spending

Several members in the FIRE community track spending and budget religiously. I do not have an exact budget and may never make one. Additionally, I am unable to report my monthly spending since I do not pay close attention to my spending habits.

I do have a general idea of my expenses and could guestimate my income needs. However, we do not want to leave FIRE planning to guess work.

Over the next year or two I will hone in on my spending habits. Knowing how much I spend every month will help determine how much I need to save and how much income my rental properties and stock portfolio must generate.

My current goal is $45,000/year in passive income. However, I believe my spending is closer to $30,000 annually. Fun fact, I lived on less than $1,000/month for two years after graduating college.

Clearly I need to do some work in this department to finalize my FIRE plans. Determining my spending needs may show that I am a lot closer to FI than I anticipated.

Debt Reduction

Debt is a wonderful thing. Debt also has the ability to crush dreams. One of my goals is to pay off all debts except my mortgages before going FIRE.

When I graduated college, I had five figures of student loan debt. I have always paid more than the minimum payment and I am aggressively paying down my student loans. My student loans still have a few thousand dollars outstanding. This must be crushed before I can claim FI

In my FIRE life, I plan to have rental property #1 paid off (or very close to paid off). This house will serve as my ‘FIRE HQ’. I love the location and the neighborhood is very walkable. Additionally, the house is one block away from a major running/bike trail; this trail connects to over 100 miles of tails.

The upkeep on the house is minimal given it’s small size. The utilities are very manageable for the property; this will help keep my cost of living low.

The Cash Buffer

Cash is king.

I plan on having three years of living expenses in CASH when I step away from my job. Why?

Well, this will allow my portfolio to grow for three years without taking any distributions. This will likely translate into the ability to safely withdraw more funds in the future than if I were to start withdrawing funds day one. In fact, this may lead to me using a withdrawal less than 4.0% rule.

The cash buffer will also provide protection if there is a down market or recession during the first few years. I will not have to sell when prices are low and avoid losing money.

Peace of mind and further accumulation are two other reasons I would like to have three years of living expenses in cash when I retire.

The cash buffer will protect me from catastrophic events. Perhaps I will incur a large medical bill or need to replace a roof. Cash has my back.

I will be able to pocket my rental property income as well during this time and potentially reinvest the proceeds.

Lastly, I am fiscally conservative. The cash buffer will dramatically increase my chances of FIRE working.

What steps are you taking to solidify your FIRE plans? Have you automated your life as much as possible? Have you thought about a meaningful cash reserve?

Landlord Report – July 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – July 2017

landlord

This month was rather uneventful. I was one plumbing problem away from a perfect month (a month with no expenses and repairs).

The major highlight revolves around being the ‘Midnight Plumber’. Ok, the phone call came in at 10:30pm but midnight plumber sounds cooler. One of my tenants called me because the apartment’s plumbing was backed up and water was flooding into the kitchen sink.

Reluctantly but willingly, I got out of bed and drove 20 minutes to rental property #3. A few minutes with the plunger fixed the toilet.

The kitchen sink still filled up if water was running for an extended period of time. I took apart the P-trap and cleaned out debris. The problem was still not fixed. The plumbing for the kitchen sink needed to be snaked.

The next morning I gave a quick phone call to my handyman. He went over to snake the drain. Problem solved

The table below outlines all my income and expenses for the past month:

guyonfire

As you can see, July was a great month for my rental property portfolio. Rental property #1 and rental property #2 had perfect months. Rental property #3 took still had a great month despite the plumbing problems.

Rental Property #1

The Starter Home

Rental Property #1 Summary

In summary, rental property #1 – earned $481.76 and I spent 20 minutes my time collecting the rent on my way home from work. My mortgage debt dropped by $787.57 from my monthly mortgage payment. When considering principal reduction, I came out ahead $1,269.33

Rental Property #2

The Fixer-Upper

The tenants paid their rent of $4,000 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. There were no repairs or expenses this month, which is AWESOME! And something that happens more frequently than you might think.

Rental Property #2 Summary

In summary, rental property #2 – earned $1,591.43**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $1,591.43 for 10 minutes of effort!!! July 2017 was a great awesome PERFECT month for rental property #2. Does this income beat your day job?

My mortgage debt decreased $711.64. When factoring paying down my debt, rental property #2 made me $2,303.07.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

This was the first full month for rental property #3. As I previously mentioned, we had a small plumbing problem at rental property #3 this month.

The repair took an hour of my time and also a phone call to my handyman. He was kind enough to snake the drain for free since I recently referred him a lot of work.

One of the units utilities are included in their rent. This expense costs me $80.40.

In summary, rental property #3 – earned $1,735.52 and I spent only an hour of my time managing this property.

Rental Property #3’s mortgage debt also decreased $398.50. When factoring paying down my debt, I earned $2,134.02

Portfolio Summary

In summary, I spent 1 hours and 30 minutes of my time maintaining my portfolio of rental properties. Rental property #3 is FINALLY up and running. And guess what? It’s kicking butt!

In July, my rental properties provided me with $3,808.71 in cash flow. There is nothing like (mostly) passive income.  My mortgage debt decreased $1,897.72 last month which further increased my net worth. Factoring in repayment of debt and cash flow, my rental properties earned me $5,706.42. What else can you spend an hour and a half on and make this kind of income? Being a landlord sounds pretty good, right?

Together Everyone Achieves More: Building an All-Star Real Estate T.E.A.M.

guyonfire

T.E.A.M, the acronym commonly found in sports locker rooms and offices around the country, is a cheesy saying designed to promote collaboration. In fact, my boss has this written on his whiteboard and I am forced to see this message everyday.

Despite the acronym’s corny nature, the statement contains a lot of truth. The same holds true for having an all-star real estate team. You cannot expect to succeed in real estate on your own and will need to surround yourself with a team all-stars if you wish to succeed.

Most people believe a real estate agent is the first person to to engage; this is a common misconception.

Lenders

First and foremost you will need a lender or mortgage broker. This is the MOST IMPORTANT PLAYER ON YOUR TEAM. I kid you not, your lender, banker, or mortgage broker should be a perennial M.V.P.

Lenders, bankers and mortgage brokers all serve the same function; their job it to get you a loan. There is little difference between the three. My personal preference is a mortgage broker since brokers typically have a larger number of products to offer.

A quality lender is a game changer for your team. Lenders are very knowledgeable and will help determine your buying power. A good lender offers various loan products. The products may vary based on down payment, fixed rate or adjustable rate, and loan term (how long until the loan matures).

Additionally, your lender will provide you an approval letter. This document is required for submitting an offer on a house (unless you are buying all cash). Approval letters legitimize your ability as a buyer and provide sellers comfort in your offer.

I highly recommend going with a seasoned lender who has experience closing loans. This is not a position you want filled by a rookie.

The Real Estate Agent

The real estate agent is the second most important team member. Truthfully, most agents are horrible and not worth their commission.

However, when you find a quality agent you now have a master negotiator and someone who knows the market like the back of their hand. If you are interested in rental properties, you should not be looking for just any agent. Preferably, your agent is an experienced investor.

You want to find an agent who owns and/or manages investment properties that provide POSITIVE cash flow every month. This type of agent will assist you in analyzing deals, provide insight to market rents and help you avoid any pitfalls.

The Inspector

Never buy a property without a home inspection. Let me repeat that. NEVER buy a property without a home inspection. NEVER EVER! You are about to invest tens or even hundreds of thousands of dollars to buy property. Do NOT skimp on the inspection.

A quality inspector will tell you everything you need to know about the property. The inspector’s job is to look under every nook and cranny; if there is a problem they will find it. The inspection may take a couple of hours. Be patient – its worth it. Your real estate agent will refer an inspector if you do not know one.

I ended up walking away from the first property I ever had under contract. Thankfully, I had the guidance from my lender and real estate agent to order a home inspection. A simple home inspection saved me a small fortune.

At first glance the property looked great. The house was modestly renovated and reasonably priced. On the surface everything looked great. However, the inspector found a BIG problem.

The attic access was painted shut. After cutting into the paint to open the hatch, he discovered an alarming problem. Most of the beams for the roof were rotted out and moldy. The roof and all of the framing would need to be replaced. This was a serious problem. Walking from the property saved me a tens of thousands of dollars and countless headaches.

INSURANCE

Like the property inspection, insurance will protect your investment. Insurance brokers are boring and mundane but provide a vital service. Banks will require that you have insurance. On the off chance you are buying all-cash, you should still purchase insurance. Why would you spend a small fortune to have a renter burn the place down and lose everything? Insurance protects you from those “oh shit” moments.

In addition to insuring the property, most policies provide liability coverage up to $250,000. The liability coverage will take care of accidents such as someone slipping on ice or cover legal expenses if are sued you for a indecent that took place at the property.

Furthermore, you can purchase an umbrella policy. This type of policy is in addition to your home owner’s policy and protects you and everything under your ‘umbrella’. I highly recommend an umbrella policy once you have more than a few properties. The policies are affordable; $10-$20/month will get provide well over $1 million in coverage.

Role players

Not every player can be an all-star. You will need a few role players to round out your real estate team. Each role player has a specific skill set that is only needed during crunch time or an emergency.

  1. The LICENSED electrician – unless you enjoying being shocked and know what you are doing, I highly recommend finding a LICENSED electrician. Electricians are hard to come by but good to know. Want a new light fixture installed? Need a heavy up? Bought an old house and need to install new GFI outlets in the kitchen and bathrooms? Or perhaps the property is so old the entire electrical infrastructure needs to be replaced. An electrician, more specifically, a LICENSED electrician can help with all of these problems. You should only use a licensed electrician; bad electrical work could lead to bigger problems such as fire.
  2. Mr. Plumber – plumbing problems will almost certainly occur if you own rental properties long enough. Some problems may even require a plumber. This team member can assist in snaking drains, installing new fixtures, outdoor faucets or assisting in the building of a new bathroom.
  3. HVAC – ever lose air conditioning during the hottest day of summer? What about heat during the coldest day of winter? That shit sucks! Having a reliable HVAC repair person/company is vital. Without one, you may be stuck with nagging tenants begging for a hotel room until heat/ac is restored.
  4. Appliance guy – refrigerates, ovens/stoves, washers, driers and dishwashers are typically cheaper to repair than replace. Having a great appliance repair person will save you a small fortune. Ideally, you would like an individual or company capable of repairs all appliances. Additionally, you would want a quick turnaround (next day or two).
  5. The Generalist – Jack of all traits and a master of none. You will want a generalist to round out your team. This member is capable of doing various small and medium size products and repairs.
  6. The Lawyer – When push comes to shove, you want a quality real estate attorny in your bullpen. A good lawyer can help you review lease agreements, navigate the local landlord-tenant laws, and assist in any legal proceedings. Be sure to find an attorny with local real estate knowledge.
Finding Your Teammates

There are many ways to find your teammates. Generally, your real estate agent will be a good referral source.

Also, I highly recommend going to local real estate investing clubs. These events are great for networking, finding likeminded individuals and mentors. Additionally, attendees at such events will likely refer you to potential teammates.

You can also ask your existing team members. I once found a plumber through my electrician; they worked on a job together a while back. This is a people business and its who you know.

Your local home improvement stores like Home Depot might be a good way to find a few team members. Perhaps will bump into a handyman/generalist in one of the isles. You may also find an electrician picking up wires.

Also, you should always request recommendations or references before hiring a team member. Hiring the wrong person is costly mistake and a project will quickly go over budget if you have to replace them. Save yourself headaches by doing your due diligence up front.

Lastly, I highly recommend that all your team members are local. You do not want to depend on someone who is an hour away and three towns over. Having local team members makes them more accessible and cuts down on repair times.

Q2-2017 Dividend – The Dividend Report

As many of my readers may know, I love dividend stocks and believe dividends provide a great source of passive income. Moving forward, I will be providing quarterly updates regarding my dividend income. Utilizing ‘The Dividend Report’ section of my blog, I will share my progress towards my dividend goals. I will also share dividend growth stock ideas and thoughts. Additionally, I will share the rational behind any future purchases or sales. Dividends are truly a wonderful thing.

The Goal

The current goal is to average $1,500/month in dividend checks. I would like dividends to provide between 25-33% of my monthly retirement income. However, this goal may be revised upwards over time.

Q2-2017 Dividend Income

My Q2-2017 dividend income was $686.46. Last quarter (Q1-2017), my dividend income was $334.60. This equates to a $351.86 or 205.05% increase from the previous quarter. The increase was largely due to 401k contributions that provided more dividends via index funds. Additionally, the funds in my 401k do not provide a dividend in the first quarter (weird I know; I get two dividends in Q4)

Last year’s second quarter dividend income was $453.51. This equates to a $232.95 or 51.36% increase from the same quarter last year.

In past four quarters, my total dividend income was $3,050.29. I am proud to report that my dividend income is continuing to trend upwards. This growth is fueled by my individual stocks increasing their dividends and continuing to invest (mostly via index funds).

My average monthly dividend income is now $254.19 ($3,050.29 / 12 months = $254.19), which is 16.94% of my current goal of $1,500/month. I am now almost 2.0% closer to my goal; Previously I was at 15.08% of my goal.

The graph below outlines my quarterly dividend income dating back to Q1-2013:

The table below outlines my quarterly dividend income dating back to Q1-2013:

New Purchases

No individual stock purchases in Q2-2017. Currently, I do not see many (any?) undervalued dividend growth stocks. The market is at all-time highs and I cannot justify buying an individual stock at these levels. I am patiently waiting for a pullback to present a buying opportunity.

Landlord Report – May & June 2017

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…. This report will actually capture the past two months; I have been busy and could not keep my regular posting schedule.

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Other topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) it took. I want to show the world being a landlord is a wonderful thing.

I also manage ~50 properties for other people, but this report will not share information on my clients or their properties.

Throughout this process I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income. Please feel free to contact me with any questions – happy to provide insight.

The Landlord Report – May & June 2017

landlord

The past few months were very busy; my day job and side hustle took up a lot of my time. I was also busy finalizing rental property #3 which is now fully leased.

Oh, and I have a few minor (major?) repairs to report! While I love a perfect month, which is a month with no repairs and expenses, this is not always the case. I want you to fully understand life as a landlord.

The past two months have included the following – raccoons, termites, chainsaws and bed bugs – oh my! But never fear, these are actually all small problems and easy fixes. The chain saw was the best part!

The table below outlines all my income and expenses for the past two months:

As you can see, I actually lost money in May and June. However, this is a bit misleading. Rental Property #3 was not rented in May; the June rent is pro rated for only 5 days. Never the less, I did have some modest expenses and stories from the past two months to share with you.

Rental Property #1

The Starter Home

Raccoons! Bed bugs! Say it ain’t so… I will not go, turn the lights off carry me home (ok, maybe listening to Blink-182 while writing blogging is not a good idea).

Raccoons! My new least favorite animal. This issue occurred last winter and I had a small raccoon family living in the attic. The annoying creatures have been removed and the attic sealed up months ago.

So why am I talking about this now? The raccoons tore up the attic space. More specifically, the duct work for my HVAC system was damaged. Thankfully, this was a relatively effortless fix.

I called my go to HVAC repair guy (a must have member of your team; I should write a post on this at some point). Two afternoons of labor and $310 later the HVAC system showed no signs of our furry visitors.

Total time for HVAC: 30 minutes

Bed bugs! Wow, so one of the tenants is a bit of a slob. Bed bugs are no joke and a result of personal cleanliness (or lack their of). Bed bugs also bread quickly which can lead to infestations if the problem goes untreated. My pest guy treated the house the following day for $650. This is an expense that I paid but the tenant will reimburse me for since lack of cleanliness caused the problem.

Total time for bed bugs: 15 minutes

The tenants paid their rent of $4,600 ($2,300 x 2) in full and on time. Rent collection took a total of 40 minutes (20 minutes per month).

Rental Property #1 Summary

In summary, rental property #1 – lost $196.48 and I spent  about 1 hour and 20 minutes my time the past two moths. My mortgage debt dropped by $1,489.49 over the past two months from my monthly payments. When considering principal reduction, I came out ahead $1,293.01

Rental Property #2

The Fixer-Upper

Chainsaw time! The property had a tree that my tenants and I wanted removed. I went to Home Depot to rent a chainsaw but their rental was broken. Not wanting to delay the project or leave the store empty handed, I bought a chainsaw, gloves and industrial bags.

The total expense was $142.12 and I now have a chainsaw for future projects fun. This also took about an hour and half of my time but was a fun project on a sunny afternoon. Who doesn’t love power tools?

Also, one of the bathrooms sinks experienced slow draining. This is a common occurance that will happen over time. Thankfully, this repair only took 5 minutes. All I needed to do was disconnect the drain stopper and clean out some hair that was clogging the drain…. YUCK!

The tenants paid their rent of $8,000 ($4,000 x 2) in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee.

Rental Property #2 Summary

In summary, rental property #2 – earned $3,040.74**. I spent maybe 10 minutes of my time depositing the checks with my smart phone. As a result, I earned $3,040.74 for 1 hour and 45 minutes of effort!!! On an hourly basis, this was $1,737.56/hour. May and June 2017 were great months for rental property #2. Does that beat your day job?

My mortgage debt decreased $1,416.19 over the past two months. When factoring paying down my debt, rental property #2 made me $4,456.93.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

TERMITES!!!! We will get to that in a moment.

Ah yes, rental property #3. Renters moved in the last week of June and I collected a partial month of rent along with a security deposit and July’s rent from both tenants.

The termite swarm showed up out of the blue. I had a termite inspection conducted prior to buying the property; there were no signs of termites.

Well, one day I walked into unit #2 and there were dead termites all over the bathroom and one of the bedrooms. My heart skipped a beat, sank and panic sunk in.

This was a first for me; I have never encountered a termite problem before. Thankfully, this problem was solved with a simple phone call to my pest guy.

The termite remediation costs $950; the fee covered treatment for both units and the entire property. I lost a few nights of sleep wondering if the house was going to collapse; it won’t.

In summary, rental property #3 – lost $3,591.16. This figure is a bit misleading since the property was only rented for 5 of 61 days. Never the less, I DID lose money. The termite remediation was a curve ball and unexpected. However, I anticipated the property being vacant for a few months while I renovated and leased the building. Going forward, rental property #3 will provide quality cash flow.

Rental Property #3’s mortgage debt decreased $$794.77 over the past two months. When factoring paying down my debt, I lost $2,796.39

Portfolio Summary

In summary, I spent 3 hours and 5 minutes of my time maintaining my portfolio of rental properties. Rental property #3 is FINALLY stabilized and will provide income on a go forward. This is a huge relief since rental property #3 also killed my cash flow the past two months. I am comfortable with these upfront costs since the rental property will provide great passive income in the future.

In May and June, my rental properties lost me $752.90 with consumed over three hours of my time. BUT!!! My mortgage debt decreased $3,700.45 over the past two months. Factoring in repayment of debt, on paper, I still came out ahead $2,947.55

Negative Net Worth to over $500,000 in 4 Years

Flash back to four years to 2013. I had just graduated college with five figures of student loans and about $5,000 of credit card debt. Thankfully, the credit had zero interest for 12 months; I had just signed up for it on a whim on a spring break trip.

The job market was still rough at that time. I had applied to approximately 90 jobs before being hired. That said, I was fairly optimistic about the future since I landed a great entry level analyst job soon after graduating.

Flash forward to the present. I am very blessed and fortunate to have the life I am living. I have a great job, own three properties that provide dependable income and am working towards financial independence. Today, my net worth is more than $500k. Yup, over a half a mil.

I am going to tell you how I got there but first I’ll share a bit about my background.

I grew up lower middle class and middle class. At times, I even got free breakfast and lunch at school because of our family’s income.

I have never received an inheritance or any windfalls. I do not have a trust fund.

My parents had me at a very young age then went their separate ways.

I struggled with dyslexia.

I did not graduate high school on time.

I failed out of college… TWICE – but eventually graduated.

I graduated with five figures of student debt like most of my peers (and still have loans).

I acknowledge there are privileges in my life that some less fortunate than me did not enjoy; I had a loving family, attended relatively safe public schools and never worried about a roof over my head as a child. My success is a result of hard work, being frugal, avoiding lifestyle inflation and a bit of luck (thank you bull market).

Year 1: The Accumulation State

Fresh out of college, the ‘real world’ was waiting for me. Honestly, this is a scary time in life. It is sink or swim and time to start ‘adulting’. Bills come in, credit scores matter, and attending class is no longer your biggest worry.

Instead, you are working Monday through Friday (including the occasional weekend). Unfortunately, you cannot play hooky to go on a bike ride with friends in the middle of the week anymore.

Life becomes a juggling act. Balancing work, family and friends is not easy; its a skill many never master. I certainly have not.

I faced a learning curve in my first year in the real world. In college, I studied finance and economics, so I knew it was important to start saving and investing as early as possible. The idea of going broke or further into debt scared the living hell out of me. I had big aspirations of living the ‘baller life style’ and did not know about #FIRE yet.

I squirreled away as much of my paychecks as possible while contributing to 10% to my 401k. Unfortunately, my employer did NOT match 401k until you had a year of tenure.

Growing up, I always had two or three part time jobs. While I was making a decent penny for a 23 year old (I would prefer not to share specifics; I’ve gotta keep some details private!), I wanted an extra source of income.

Experts talk about diversification all the time. Usually it pertains to investing. However, I needed to diversify my income; I felt at risk for having one income stream.

Think about it. It’s binary if your only income comes from your employer. You either have your paycheck  or you do not. If you were let go next week, how long could you survive without that income?

So, I continued side hustling. I was ‘swim practice taxi’ for a high school kid and drove him to swim practice every morning. This required waking up at 3:40am to pick the kid up by 4:00am so that he could make his 4:30am practice. While the kid swam, I would either get a jump start on my work or exercise for an hour and half. It was easy to be productive during this time since there are no distractions at such an early hour. Then I would drive him home and head to the office.

I also worked the occasional odd job for extra income. I lived at home for approximately 8 months and learned to live off my side hustle income.

This allowed me to save most of my salary, build up an emergency fund and max out my Roth IRA. My emergency fund was about $8,000.

Thanks to my savings mindset, I was able to come up with a 3.5% down payment (around $11,000) for my first property, which I bought less than a year after graduating. It is a 3 bedroom/2 bathroom duplex (I own half the duplex) in a working class neighborhood – nothing fancy.

The monthly payment was more than I was comfortable with (thanks PMI) BUT that was ok. Why?

Because I decided to househack and rent out the extra rooms. The rent I collected covered a bulk of the mortgage and kept my cost of living low. Renting anywhere would have been more expensive.

Bonus – I also received tax benefits associated with owning a home and my renters were paying down most of my debt every month.

I ended year 1 with a net worth of: $33,313.11

Year 2: The Growth Stage

This year started off with a bang as I was the proud homeowner. My side hustle ended, though, since the kid could drive himself to practice.

Just when you think everything is going well, life can throw you a curve ball (or two). I had two major medical accidents a month apart. I was lucky to have good health insurance from my employer, but this experience stressed the concept of having an emergency fund and did set me back a bit financially.

This financial setback combined with no longer having a side hustle motivated me to find ways to increase my earning potential. Thankfully, my cost of living was low since I was househacking.

I was killing it at work and decided to ask for a raise. My boss agreed; but this promise went unfilled for a few months.

One day a recruiter from a competitor’s firm left me a voicemail. I decided to return the recruiter’s call. Next thing you know I was on my second round of interviews and the new firm paid for my travel to New York City for a final interview. A job offer followed shortly after the trip to the Big Apple.

The new job was a promotion and the compensation was something my previous employer did not match. So, I left my old job on good terms and never looked back.

Around the same time, I started a Master’s program. Taking classes at night and on weekends filled up my schedule. Long-term this would be beneficial, or so I thought. I mean, Americans are trained to think higher education is good right? Looking back, for me, grad school ended up being a complete waste of time and money.

Near the middle of year 2, I stumbled upon a few FIRE (financial independence; retire early) blogs. I was immediately fascinated with the idea, concept and lifestyle many bloggers wrote about.

Biking to work and preparing most of my meals at home became common practice. This allowed me to increase my savings rate significantly. Parking in the city is about $20/day and eating out is not cheap.

Dreams of a flexible life filled with travel, time outdoors and avoiding an office constantly crossed my mind. The idea of working on projects for primarily enjoyment and not monetary gain excited me.

I began to take as many steps as possible to set myself up for financial independence. Past aspirations of a “baller lifestyle” with fancy cars and country club memberships faded into distant memory.

Towards the end of year two I was able to refinance my house and get rid of PMI payments. Refinancing lowered my monthly mortgage payment about $400. This helped me budget, save, and invest as I was generally living on less than $1,000 a month. However, I would occasionally let loose to enjoy a night out with friends or travel.

I ended year 2 with a net worth of $112,061.49 – a $78,848.38 increase over year 1. About half the increase was from savings/investing. The other half was from reduction in my mortgage debt and property value increasing (confirmed by appraisal and Redfin).

Year 3 – The Snowball and Risk Taking State

Year three was marked by wanting to grow and get to financial independence as quickly as possible. Two actions allowed me to take years off my timeline to achieving financial independence.

First, I started another side hustle. (Oh boy here he goes again…) I worked part-time (sometimes felt like full-time) as a property manager for a few dozen rentals in the city.

The position required me to be the main point of contact for all the tenants. Additionally, I was responsible for scheduling repairs (some I did on my own), marketing vacant units, collecting rents and overseeing the turnover process of tenants moving in and out.

This was a great learning experience as I wanted to own more rental properties. The gentleman I worked for had over 15 years of experience in being a landlord/property manager in Washington, D.C.

Our nation’s capital has very tenant friendly laws and landlords have few rights. This can be challenging to navigate around if you do not know what you are doing. I highly recommend understanding your local landlord/tenant laws if you plan to own rental properties. Some places are tenant-friendly while others places are more landlord-friendly.

Second, I bought my second investment property, The Fixer-Upper. This was the worst house on a decent street in a neighborhood surrounded by gentrification. This is the ultimate trifecta for anyone looking to find a good deal and create value.

This home was purchased with an FHA 203k loan which required only 3.5% for the down payment. The loan also gave me extra funds to fix up the place. To be clear, this was a complete gut renovation. The property had been neglected and unimproved since the 70s.

The renovation process was stressful but rewarding. My bank account almost hit zero a few times as the renovation budget was more than loan would cover. However, it was definitely worth it in the long run.

I continued my love of house hacking by living in the property. However, unlike my previous house, I lived here for free. Actually – I got paid to live here because my tenants (roommates) covered all of my expenses and then some.

Not only did I keep my cost of living low, I completely eliminated my housing expense.

This was huge! Absolutely HUGE for my budgeting. Most people’s biggest expense is housing and I no longer had to worry about paying rent or a mortgage.

At this point, my only living expenses were transportation, food, and entertainment. As you can imagine, this did wonders for my savings rate and ability to invest.

My spending has increased modestly and I no longer live on less than $1,000/month. I am still thrifty and do not spend lavishly, but enjoy a few more meals out or drinks with friends.

Heck, I still occasionally go for a Zero Day Challenge like my buddy over at Zero Day Finance. Highly recommend checking his blog out if you are looking to learn more about saving and budgeting.

During years 1 and 2 I passed on many weekend trips and lavish trips abroad. In year 3, I decided to enjoy life a bit more. After all it is all about balance. I went skiing for 5 days out west and went backpacking in Europe for 17 days. Gotta live life while you still can as long as you are still planning for tomorrow.

I ended year 3 with a net worth of $261,038.14 – a $148,976.65 increase over year 2. Much of this increase came from the value created in my second investment property and continuing to pay down mortgage debt (with other people’s money). Though approximately 35% came through saving/investing; compound interest or the ‘snowball effect’ is an amazing tool.

Year 4- ball out or burnout?

Year 4 was a year full of decisions. The job I once enjoyed became unbearable. My boss turned into a micromanager and fostered a hostile work environment; my whole team agreed.

To further complicate matters, our firm had willingly stopped doing new business for almost a year. Going to work everyday to twiddle my thumbs and deal with a buffoon of a boss did not sit well with me. I had two feet out the door and never looked back.

A small, local firm reach out to me and through a recruiter. The position did not entice me but I knew the work environment could not get any worse. The company was committed to growth, which I liked. Given my experience working with some of the world’s most sophisticated clients at my previous job, I knew could contributing to the new firms growth would manageable. The smaller firm demanded less hours and provided better compensation as well.

During my discussions with HR, I was able to negotiate a meaningful 40% pay increase and a modest signing bonus. I also negotiated a start date that allowed me a full month off in between jobs.

The mountains are my zen place and I spent a week in the rockies climbing and camping during my month of ‘down time’.

“The mountains are calling and I must go” – John Muir

The other three weeks were spent tending to the responsibilities of my side hustle and getting my life in order from all the things I neglected during my 80+ hour work weeks.

My side hustle become more of a burden as we doubled the number of properties under management during my tenure. This now felt more like a full-time job. As I announced earlier this month, I will be stepping away from my side hustle. The money and experience were great, but I value my free time and do not need the additional income.

Year 4 was also great for my savings and investing. I still did not have any living expenses and continued to invest regularly.  This was the first year that I maxed out my 401k. I also bought investment property #3.

The decisions made in year 4 will allow me more downtime and help avoid burn out. I could have kept going 100 miles an hour to afford a baller life style, but the at the expense of being burned out, I do not see the value.

I value my free time and flexibility. I want to escape the rat race and get off the corporate hamster wheel. The dreams of financial independence are more vivid every day.

I am not ready to walk away from my day job but the sacrifices I made in the past 4 years have provided a great foundation for financial independence. I plan to enjoy my life more and work less while continuing to save for financial independence.  If everything goes to plan, I look forward to announcing my FIRE date before the age of 30.

I ended year 4 with a net worth over $500,000.00 – a $238,961.86+ increase from year 3. The increase was about 40% from saving and investing and about 60% from reducing mortgage debt and property values increasing.

I have overcome adversity and defied the odds, and have two pieces of advice for you: Do not let society put you in a box. The only place you will find success before (hard) work is in the dictionary.

Have you ever sacrificed short term pain for long term gain? What instances in your life have you put in the extra time to get ahead in life? Did you know when it was enough? Or did you burnout? Perhaps you are still going 100 miles an hour?