We’ve done it – passed the $2 million mark in net worth! We didn’t creep by the milestone, we blew by it. Increased our net worth by over $150,000 from the first quarter. It came from some healthy saving (about 70% of income), the start of a new project at work, and a positive single family real estate market.
Our assets still look like a monopoly game – properties, hotels, houses, and maybe a thimble in there somewhere.
Investment Assets (net worth – primary residence) are currently at $1.65M. Our loose goal for financial independence is $2.5M of investment assets. We have some upcoming capital events at work (sales, refinances, project kickoffs), so we could continue making good headway on net worth through the end of 2015. Still aiming for middle of 2017 for full FI.
Here are the highlights on variances from last quarter’s net worth, followed by a chart of all the assets/liabilities:
- Cash on Hand ($100k: $50k increase) has gotten a little heavy. But with bonds so low, I’m struggling to take money out of the NC State Employees Credit Union (money market at 1%) to put in a bond fund (VTBLX) that only pays 2.17% with a 5.7 year duration. Either way, I do have a bunch sitting in our Wells Fargo account getting paid zero percent, so need to move that to the credit union at least.
- Stocks/Bonds ($564k: $7.5k increase) Not a ton of movement this quarter – just kind of drifted up and down a little bit. We are currently a year into the process of “Value Averaging” out of a substantial cash/bonds position. Still at 43% cash/bonds, versus our goal of 25%. Should take another year or so to get to our target, depending on the market. I’ll write a post on our allocation strategy and value averaging in the next couple of months.
- Two Rental Houses ($202k: $22k increase) Equity marched up its steady $3k per quarter as the rentals pay down about $500 per house per month. On top of that, I revalue the houses semi-annually using zillow. Value increased by $19k – which is actually decently conservative for what I’m seeing in the sales market in that area. All’s well on the net worth side, but cash flow on Rental 1 was bloody (described in the cash flow post).
- Commercial Real Estate ($789k: $57k increase) A good bit of movement in work projects.First, we sold Property 2 last month. I’ll receive about $53k in cash due to the sale, paid over 6 months. I’ve received a little over $20k of it so far, so have shown the Property 2 account reflecting this partial disposition. Given our equity setup (I will not go into details), it was not a great sale. Made a ton of sense for our partner (package deal with other properties), but we would have been better off holding tight and receiving cash flows from operations on this particular asset. Still, converting paper equity to cash is always nice. Second, we kicked off another apartment project. I’ll track these projects going forward at this personally-defined Book Value. Book Value – meaning the appraised value at time of some capital event: construction loan, permanent loan (stabilization), or sale. In this case, my portion of the general partner beginning equity account (created from deferring fees) equates to $76,000. This should be a conservative way to value my real estate holdings – providing for fun upside surprises instead of sad/frustrating capital events.
- Our Primary Residence ($480k: $20k increase) is fully owned by my wife & me, no loan involved as of this year! The increase this quarter came due to housing prices being on the rise around here. I’m updating it semi-annually using zillow – as long as the value feels conservative.
Below are the details:
|Cash/Short Term||$100,301||Up $50,000 - Savings, Property Disposition|
|Stocks/Bonds||$564,068||Up $7,500 - Market, Dividends|
|Roth IRA 1||$53,488|
|Roth IRA 2||$50,114|
|Rental Houses||$202,054||Up 22,000 - Mortgage, Value Increase|
|House 1 Value||$283,000|
|House 1 Debt||($177,277)||65% LTV|
|House 2 Value||$261,000|
|House 2 Debt||($164,669)||66% LTV|
|Commercial Real Estate||$789,608||Up $57,000 - Disposition, New Project|
|Net Investment Assets||$1,656,031||Up $117,500|
|Primary Residence||$480,000||Up $20,000 - Value Increase|
|Home Debt||$0||Still Hooray!!|
|Total Net Worth||$2,136,031||Over $2 Million!!! Up $150,000|
And looking forward at net worth, I expect the rest of 2015 to head in a positive direction.
We will continue saving almost 3/4 of our after-tax income. We haven’t quite gotten down to our $50k annualized spending goal (more on that in the Q1 cash flow post), but our current lifestyle vs income leaves a lot of room for savings.
We also have 3-4 project starts upcoming in the second half of this year. Property types range from a hotel to apartments to office. I could be looking at several hundred thousand dollars of new equity if things go well. I’ll keep working hard and hoping for a stable market.
Additionally, we should be selling another asset in the fall. Property 4 (book value of $125,000) has been exceedingly successful and matched by a very hot market. It will likely sell at a value leaving me with 2.5-3x the currently held amount.
I don’t expect much help from the stock market. But just like other people, I don’t know which direction it will go. So I’ll keep plodding along and increasing my investment level monthly. I’m a little hesitant of bonds right now. I will likely overweight in money market, or maybe pay down some of the mortgage on the rentals.
As I stated last net worth update, we aren’t diversified well per the textbooks – 60% of our investment assets are in real estate. I would never buy and hold this much in REITs. I do however believe that being invested in active real estate on the general partner side is a good way to beat the market. I get a promoted interest on upside returns – akin to a partner in a hedge fund. So still have the downside, but the upside is set at a much higher rate of return. Therefore a more-than-fair average expected return.
With this said, as these development assets stabilize, I’ll continue rolling cash from dispositions into general stocks and bonds to diversify.
Do you have any recommendations for me going forward?