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Finish_line

Are We There Yet?

Summertime – a time for half-baked family trips and fighting kids.  I’ve certainly heard that (title) question enough from the back seat.  Might as well ask it myself…

 

We’ve been working hard towards Financial Independence / Retire Early (FIRE) for a long time.  Coming up on the goal after these years, are we there?

It’s a split decision.

I think we’ve reached FI and ready for RE.  My wife thinks we have more to go.   I think she’s crazy; she thinks I’m nuts.

We’re probably both right.

A few years ago, we set the goal of $2.5M of investment assets for FIRE.   This would produce roughly $100,000 in spending capacity annually.  We thought we’d spend $50,000 each year, excluding taxes & charity.  We would have roughly double our core spending amount – a method/goal I adopted from my original favorite FI blog: Brave New Life.  Over time, our asset growth should easily outpace spending.

 

Are we FI Now?

I’d say yes.  About a year earlier than even hoped for.  But there’s a mess of fine print.

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Hay Bales - Sunset

Making Hay – Net Worth to $3.2M

I understand that real estate could implode anytime – it’s very cyclical in nature. Meanwhile the sun is shining, and we’re making hay.
–Bubba, Southern Fried Finance (Q4 update)

In the first quarter, we hit new highs again in every category of net worth.  Things are just on fire.  We had a net worth increase of over 25% from last quarter – up $660k in 3 months.   We are up over 60% since this time last year.  It’s the culmination of a wildly successful couple of years at work paired with a some focus to contain lifestyle inflation.

I actually had a hard time posting this update because our net worth is getting awkwardly high.  I didn’t expect this type of growth when I started writing this blog.  After a few weeks in the draft folder, I decided to post it.  This is a secret/anonymous blog anyway; the point is to share openly.  Hopefully it doesn’t become off-putting.  And if it does, just take solace in the fact that our real estate wealth could come crashing down in flames one day!

A lot of the net worth increase (almost $400k) was due to a personal accounting shift.  My partnership deal at work got revised during the first quarter, and backdated to previous projects.  Some aggressively structured (unfavorable) vesting language was completely deleted.  So the un-vested portion went from 0% valued to 100% valued in our net worth.  Substantially affected valuations on properties 5 through 8 if you compare to last quarter’s net worth.

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Paid Off

Re-paying off the Mortgage

We have a problem that I’ll take any day.  We have over $500,000 sitting in our checking account.

What to do with it?

Quickly, the back story. Early last year, we paid off our home mortgage.

“Never again shall you hold our deed in trust” we proclaimed to creditors everywhere.  Our resolve lasted 8 months.

We decided to move. And did so in reverse order. We found a house, bought it, then put ours on the market.  Not having liquidity to hold 2 homes debt-free, we stumbled back into a mortgage. Actually 2 mortgages – one 30 yr fixed, and one home equity line of credit. Always meant as a short term (weeks) setup.

Mr. Market beat us up over the next 6 months – holiday slowness, a dropped contract, then finally a closing. We got a fat check last week and deposited in our checking account.  Now we have over half a million in cash!  Pretty cool/scary.

Since it has taken so long, it’s like a new decision on new circumstances.  Buy something else?  Invest rather than de-leverage?  Or just pay it off.  Before sending that wire to the bankers, I wanted to think through our options:

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Kid Abacus

2015 Accounting – Cash Flow

Closing the books took a while for me.  While we didn’t actually force the kids to help using an abacus, it’s not a terrible idea for next year.  Might speed things up.  So here’s the report; just a shade before summer.

For the year, we saved 70% of our income ($153,000)!  That nudges out 2014’s 68% rate by a couple of percentage points.  Similar income & expense totals as last year, although the spending categories have shifted around some.

Several things are excluded: real estate distributions (fluctuate too much each year), charitable giving (Not normal spending), and closing/renovation costs on our home move (one-time).  If you include these categories, our savings almost double to $295,000.  Quite a year for us.

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Downhill Momentum

Creating Momentum

To you bloggers that consistently put out multiple articles per week for years – my sincere respect.

To someone who stays in shape while raising children in today’s hectic world – a tip of the hat.

To any hobbyist that sticks with it through life’s ups & down – cheers.

Between work and young kids, I’ve struggled to stick to anything…Haha, cue my one year old – up early from his nap – I’ll be back later to finish this!…Back now, two days later.

So how does someone get re-started on long-term goals coming out of chaos?  Create some momentum.  Find something, anything that moves you towards your goal.  Get some small wins.  Create a habit.

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Fruit-falling-from-tree2

Cashing in a Windfall

I’ve never won the Powerball.  Never sold a tech business for a bazillion $$.  Never gotten a massive inheritance check.   But I’ve received plenty of windfalls*.  Big, small, and in-between.  Raises, bonuses, asset sales, refinances.  Doesn’t matter – I’ll take the extra cash.

And now, I’ve just received another windfall – the largest to ever come my way.  At work, we sold an asset that I had a large hand in creating, but no ownership.  Real estate deals are a bit unfair that way – you’re either an owner up front, or not.  In this one, I was not.  And this deal crushed it.  Equity returns of 4x in under 4 years.  For us as the developer/sponsor with our waterfall structure, that means returns of 8-9x initial investment.

My bosses made up for me being left out when we sold.  They gave me a surprise bonus that matched my whole annual salary – over $200k.  Geez.  Makes me feel a little guilty for bitching over the years about not being included in that deal.

Having the extra cash from this windfall is awesome, of course.  I could save it, spend it, or give it away.  Unexpected, free money.  What could be better?  All the flexibility in the world.  Let the spending begin…?

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commercial-real-estate

Real Estate Market Fundamentals

In this post I’ll tell you what fundamentals to look for in real estate, and give you my two cents in an analysis of today’s market.

I’ll write a post in the future on the specifics of underwriting & beneficially structuring real estate deals.  But the first step is knowing the market.  Basic economics – what do supply and demand look like?  And what factors are changing that in the near and distant future?

Real estate is not nearly as efficient as stocks or bonds.  I believe that someone with a critical eye who puts the effort to collect the information can produce outsized returns compared with the averages.  REIT dividend yields are plus or minus 3% – I’d certainly hope we can aim a little higher.

In an inefficient market, you can find deals if you know how and pay attention.  It’s worth examining the fundamentals.  Understand the overall market dynamics, apply them to your local market, be patient, and after a while you’ll uncover a gem.

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Gol!!!

2016 GOOOOOAAAAAALLLLLL!!!!!s

What’s better than a GOOOOAAAAAAAALLLLLLL!!!!!!

I really enjoy & am quite good at putting in the effort to achieve something once.  And man…to bask in that final achievement.  I love a goal with accompanying check-mark.

I do struggle at long-term, repetitious goals.   2015 showed that I can easily get off track on long-term goals if I get too busy.  So I’m focusing on the repeaters, but trying a perspective shift.

This year, I’ll try to create new habits, not just achieve goals.  To create a habit, I first need to repeat something.  To make it stick, I’ll be looking to find immediate enjoyment in the activities – in that first month or so.  I don’t want to trudge along all year with singular focus on the end zone.  Appreciate the journey, me.

When I grade myself at the end of the year, the goal itself will be important, but primarily the question will be: did I create a lasting shift in my behavior?  Did I find something that I enjoyed about the path that kept me on it?  What was it?

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Net worth header

Net Worth – Q4 2015

In the fourth quarter, we saw a strong increase in net worth and hit another milestone: over $2.5M…$2.53M to be more exact.  Crazy – we had a net worth of under $700k when we started tracking it in June 2013.  A good two and a half years.  Really shows the value of containing lifestyle inflation and letting salary inflation run away from spending.

Each quarter this year has been affected by remarkably different factors, but the increases have been consistently up/right on the graph.  I’ll take it.

Largest category gainer was commercial real estate – we officially capitalized 5 new projects at work!  Really, we started construction on 2 (large ones); but we acquired funding for predevelopment stuff on 3 others.  We sold another one, but I won’t see any proceeds from that until 2016.

Investment Assets (net worth – primary residence) are currently at $1.93M.  Up almost $200,000 from last quarter. Our loose goal for financial independence is $2.5M of investment assets.

We did continue to divert $$ to our used-to-be-fixer-upper, in the form of renovations & furnishings.  While we spent a bunch of bucks, we got pretty good mileage for each of them.  I ran a decently tight ship on the contractor front (overspent a bit on the master bath), and my wife ran something almost resembling a tight ship on the furnishings side.

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rear-view-mirror

2015 Goals in Review

It was a busy year for us.  Lots of good things happened, along with a couple of bad.  But in a word – busy.  Hectic at work with hirings, new projects, and new people.  Crazy at home all year with adjusting to 2 kids (1 year old now, and 3 year old).  Pile on top of that a house move – not smart timing.  And mentally busy for me: not a lot of time margin for prayer/meditation, quick shifts from one activity to another, and large decisions & stressors abounding.

So here is an overview of results on last year’s goals, starting with a couple of lesson’s learned (a cornerstone of any good review, says the corporate organizational behavior nerd)

Lessons Learned

First, I could use a check-in or two before a year is up.  When I sat down to review, I had no idea what my goals had been.  At least they were written down – points for me there.  But having not checked in on them a couple of times throughout the year had left me a bit rudderless.  I always have leeway to change a goal, but I would rather have that an active decision than a result of no attention.

Second, overcommitments consumed me last year.  I enjoy a sprint at times, but not all year.  As I told my boss in my work review: everything was good, but there was just too much of it.  At times I hit utter exhaustion.  This holiday season has been a good recharge and reset.   I look forward to a littler slower life in 2016.

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