For a personal finance blogger, I’m probably average at best at cutting expenses and living an American-frugal lifestyle. But I am above average at growing income – and even while being a dreaded employee. Below I bare it all – exposing my whole income history.
It’s a little embarrassing to put this out there but in the name of blogging transparency, here goes. Hopefully there’s a lesson or two for anyone who is interested in reading.
My first job lasted 2 years. It was sort of a use-use situation. A large consulting firm, the setup had the incoming associate consultants used as workhorses. In return we learned a massive amount of critical thinking, finance, and business strategy. My coworkers were tremendously smart – and pushed me to be sharper. It was invaluable training; the main reason I took the job. I think of it as a mini-MBA (the full version of which I never ended up going back to get).
I began there earning a base of $55,000, with bonus/benefits taking it up to $64,000. Less than I would’ve made in banking (interned previous summer in NYC with a certain ill-fated investment bank), but a somewhat more reasonable lifestyle. The 80-100 hours per week in banking were traded in for 60-70 hours per week plus travel. And I lived in a smaller big city – Atlanta. Very fun living in-city as a post grad, and substantially lower cost of living than NYC.
My second year came with a raise to 65,000 base, just under $75,000 fully loaded. Towards the end of my second year, I had the option to stay on for a third year at $75,000 base + $25,000 benefits/bonus. During this year I could have worked at another office globally (English-speaking, due to my foreign-communication limitations). Mainly due to a family tragedy & subsequent reshuffling of priorities, I instead wanted to get back to North Carolina.
Real Estate Development
I looked for a job in real estate development – specifically urban redevelopment. Ended up being a lateral (using rosy colored glasses) move salary-wise. I came into real estate development in 2005 making $75,000, with less bonus potential than consulting. But I was really charged up about the work, so assumed with this passion I could perform well.
Times were good in real estate, and I was performing well. I was bumped up to $90,000 in a year, and to $120,000 the year later. My bonuses were in the $10,000-15,000 range. As a company (and industry) we were in debt-fueled hyperspeed growth. Our pre-recession climax came in 2008…my salary hit $150,000 and earned a small (less than 5%) ownership stake in the “sweat equity” portion of our deals (equity created for the general partners through above-average investor returns).
Then the earth shattered and the leveraged house of cards came tumbling down. My (commercial) projects were in good fundamental shape, but my company’s residential projects teetered on the brink of bankruptcy for the next few years. Also, there was no new pipeline of developments because banks were basically insolvent. And so our newly medium-sized company withered slowly back to a small company over the next 3 years. In credit to our ownership, they kept my (and other retained employees’) salaries fixed during this time. Bonuses were small, and new equity creation was virtually nil.
I took on substantially more responsibilities – oversaw construction management, established some property management businesses, kept the banker-wolves at bay, kept the wheels on some stalled development projects, and created some new projects from the ashes of dead deals. In credit to myself, I never asked for a raise during these times. Got a few title-only promotions, and because a key player on the leadership team.
Once the financial plumbing turned back on, we found ourselves in a market sweet spot. Borrowing rates had plummeted and construction costs were low. We became quite good at mixed-use developments favoring multifamily – and these became lender/investor darlings. And we had worked through the tough times with a high level of honesty and so earned respect.
My salary finally moved up to match other senior leadership. First bump moved me to $190,000 with $30,000 bonus potential. Since the bonus was supposed to be a sure thing, my salary was eventually set at $220,000 in 2013.
My role became one of a development manager who needed to build a team, so I could be a full development director – managing people instead of projects. Our development team grew in 2 years from three to nine of us today. I became a Director of the company.
My compensation has increased since then mainly through ownership (and some small bonuses). For these purposes, I split benefits from work into two categories. First, when we start a new deal, I get an equity capital account. I consider this compensation, in the same category as salary/bonus. But secondly, if that equity account grows because a deal is successful then that’s still great but I don’t count it as income…just as asset growth on the balance sheet like any other investment.
So speaking of equity growth, our projects that had started very late in the last cycle ended up having enough loan term to hang on to brighter days. With the market’s positive shift came asset price inflation (great if you still controlled the asset, which we did in some cases). We sold off some assets just over break even to pay back investors free up capital in other areas. Then we sold/recapitalized some assets for large windfalls to both investors and the development team. I didn’t officially count it as income, but this handful of deals did increase my net worth by several hundred thousand dollars.
My self-defined “official” compensation went up also because we’ve initiated several deals since 2013. Depending on the capital structure and size of deal, my equity account typically starts between $50,000 and $100,000 per deal. A ton of money – almost an embarrassing amount to me. We started two small/medium deals in 2013, two large ones in 2014, and have started 1 this year, with close to full commitments on 3 more. Also this compensation structure comes with significant tax advantages over W2 income (details for another post).
For any of the deals that go well, the starting developer equity accounts will double or triple (Nerd clarification: accounting-wise, this increase only reflected on the balance sheet). It’s an overwhelming amount of money since we stopped inflating our lifestyle in 2013.
At the beginning of this year, I asked for and got a raise in terms of the amount equity I receive in each deal. It comes with a long vesting period, so that’s a bummer if I leave before we sell. The ironic thing is that the raise came out of a long-term discussion where I explained that my goals were less related to the money side, more to a true partner (hopefully at this company). So I got more ownership and likely dollars, but with so many strings that it further reinforced the feeling that I’m not an actual partner. But it’s hard to critique when someone gives you more.
And finally, just recently our company reinstated a 401k match. So a raise of 4% since I already max my contributions.
In total, my gross salary went from $64,000 to either $229,000 or $454,000 (estimated: $220k + 9k match + 3*75k in deal equity), depending how you look at it. Given I’m not counting any of the deal growth anyway, the higher number seems fair to me. 7x as much – an annualized growth rate of 17.75% over 12 years.
Pretty good, in my judgement. Unfortunately there are no medals for placing in the rat race. But since our expenses are not on this growth trajectory, based on our current net worth, we’ll hit early FI soon enough. I think there are medals for that.