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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.
–Me, Southern Fried Finance (2015 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 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.

We also capitalized one new project. Crazy thing is that we have several additional projects on the verge of starting, and a heavy pipeline.  One day it will end…but not today.  Also in Q4’s update, I mentioned a property sale at the end of 2015  – I received a bonus tied to that disposition that I talked about in this post about windfalls.  That bonus was split between cash, stocks/bonds, and mortgage paydown.

Investment Assets (net worth – primary residence) are currently at $2.48M. Our loose goal for financial independence is $2.5M of investment assets, so we are right on the doorstep.  Our 2015 spending didn’t track as low as we expected.  That, paired with the speed of amassing net worth this year will probably give reason for the RE portion of FIRE to move out a bit.  More to come on this topic.

We kept our net worth growth at bay by continuing to overspend a bit on some furnishings around our new (to us) house.  This was a little frustrating, but not too many recurring costs, so I only half-fought this battle.  (Clearly I lost though).  In additional poor financial management news, we continued to own two primary residences at end of Q1 – although as of this post we were finally sold/closed/free!!

Here are the highlights on variances from last quarter’s net worth, followed by a chart of all the assets/liabilities:

Cash on Hand ($45k: $25k increase) increased mainly due to typical savings and a portion of the bonus I mentioned above.

Stocks/Bonds ($614k: $50k increase) Not a lot of movement in the market values, so this increase is from old fashioned saving.

Rental Houses ($239k: $2k increase) Equity marched up its little bit as the rentals pay down a piece of the debt each month. I think something happened w escrows to lower this from a typical quarter from $3k to $2k.

Commercial Real Estate ($1.58M: $475k increase) Huge quarter at work again. Wide open.  As I mentioned above, a lot of this increase is due to a personal “accounting change.”  Actually a significant change in my partnership status at work.

As discussed previously, I track these commercial real estate projects by a personally-defined Book Value. Southern Fried BV = my implied ownership equity amount based on appraised value at time of most recent capital event: construction loan, permanent loan (stabilization), or sale. So this mitigates speculative swings in the real estate market somewhat – only increases equity accounts when an appraiser or purchaser validates things. It tends to understate projects as they near a capital event.

Our Primary Residence(s) ($715k: $108k increase) increased due to directing bonus funds towards paying down a mortgage. Thank goodness this is the last quarter of quasi-plural in this category heading.  Kind of embarrassing to be a real estate professional who is bad at selling his own house.  Easier to joke about now that it is done!

Below are all the details:

Net WorthSubtotalTotal Comments / Change from Q3
Cash/Short Term$45,077 Up $25,000
Bank 1$21,900
Bank 2$29,111
Credit Cards($5,934)
Stocks/Bonds$614,014 Up $50,000 (Contributions)
401k 1$184,290
401k 2$25,428
IRA 1$81,824
Roth IRA 1$51,388
Roth IRA 2$47,383
Restricted Stock$7,126
Taxable Account$195,940
Rental Houses$238,748 Up $1,500 (Mortgage Am)
House 1 Value$285,000
House 1 Debt($163,813)57% LTV
House 2 Value$269,000
House 2 Debt($151,439)56% LTV
Commercial Real Estate$1,578,500 Up $474,500 (New Proj, Ownership)
Property 1$445,000Retail
Property 2$0Hotel
Property 3$12,500Apartments
Property 4$254,000Apartments
Property 5$185,000Office
Property 6$76,000Apartments
Property 7$196,000Office
Property 8$325,000 Apartments
Property 9$85,000New Construction: Hotel
Property 10$10,000Land: Apartments
Property 11$10,000Land: Apartments
Property 12$10,000Land: Office/Apts
Net Investment Assets$2,476,339 Up $551,000!
Primary Residence$715,562 Up $108,000 (Principal Payment)
Home Value$503,590Contracted to Sell!!
Home Debt$0
New Home Value$616,376
New Home Debt($404,404)Paid Down a Chunk
Total Net Worth$3,191,901 Up $659,669

Looking forward at net worth, I expect more increases throughout the year.  Nothing like the last couple of quarters, but still good.  At work, we have several projects about to commence, and have bought a hotel.  At home, we’ve sold our old house so the bleeding will stop.

We’re still working to get spending under control. Mixed bag on results, but I feel a good momentum.  We have definitely slowed down a bit.  Memorial Day weekend was a good example of living our little life with the boys. Went to a minor league baseball game, hit up some parks & museums, even cooked burgers at home.  Mainly though, I don’t feel an urge to spend any extra funds we have.

We’ll continue rolling any surpluses, bonuses, and real estate distributions into stocks/bonds when possible to diversify away from our current “monopoly board” of RE-heavy investment mix.  We took a good step this direction with our allocation of Q1’s bonus (which sort of came from a real estate asset). Might even consider selling a rental house soon.  Actually meeting with a guy about that tomorrow night.

My goal for a while has been to achieve financial independence ($2.5m investment assets) by mid 2017. Even if the finish line amount moves a bit, we are getting closer and closer.  So I’ll be thinking & posting & figuring out of what that means for me.

We’d love any recommendations going forward…

8 thoughts on “Making Hay – Net Worth to $3.2M

  1. You’re basically there! So close! Congrats! Have you ever posted on how these commercial RE projects will be divested in the future or how they cash flow? Thanks.

    1. Yes, I guess now I have to figure out exactly what FI means for me. Good idea on the post – ive only really skimmed the surface on those assets.

  2. Great Job!

    You should write a post sometime soon about your metrics and methodologies on how you evaluate a commercial real estate deal? I am asking selfishly as I am trying to get into that space but currently overwhelmed.

  3. Can you please share more information about your commercial real estate? Which state/city? Cash flow numbers and anything you can share.

    1. I can share info on the real estate. It’s located in the Carolinas. I’ll get into some additional numbers in future posts. Generally, most of the real estate starts as construction deals. Usually underwritten to a 6.5-8% unleveraged return (depending on product type). After two years of construction/lease-up, the goal is to make a 10-15% cash-on-cash return, then sell at some point for an overall 20-25% IRR (to the limited partner). My investment portion is in the general partner (sponsor/developer), so if we are successful there is a promoted return. So a 25% IRR to an LP, could be a 40%+ IRR to the sponsor.

      Of the commercial properties listed, about 1/3 are stable: past construction, past lease-up, with permanent loan in place.

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