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Net Worth – 2015 Q1

Our net worth is like a game of monopoly – mainly properties, houses, and some hotels.  Only a small helping invested into stocks and bonds (at this point).  Makes it easy to set a goal: diversification.

On the exciting side, for my first Net Worth post we’re at the edge of a large milestone.  Just short of $2M net worth!

And more importantly in my opinion, we’ve just passed $1.5M of net investment assets.  With our house completely paid off, we’ll now focus on growing this number into financial independence.

We’ve made tremendous progress increasing our net worth since deciding to buckle down and live below our means 2-3 years ago.  We’ve cut our expenses some.  But we’ve seen more impact from not inflating our lifestyle as our income has ballooned in the past couple of years.  More on that in future posts.

For most new worth updates, I’ll be describing the changes from previous quarters/years.  But as this is the first, I thought I’d just describe the highlights of where we stand:

  • Cash on Hand ($50k) is typical for us.  We use this as a living expense buffer and emergency fund.  Most of it gets 1% at our credit union.  We may look to reduce this amount now that the mortgage is paid off, and our expenses are lower.
  • Stocks/Bonds ($556k) represents all of our retirement accounts (401ks, IRAs, etc) as well as a taxable account.  401ks are with our company plans, the rest has recently been moved to Vanguard from a financial advisor.  This is the area we aim to grow over the next few years before FI.  As you’ll see, we’re a tad heavy in real estate.
  • Two Rental Houses ($180k) provide pretty steady profits that have increased to 8-10k annually apiece in the past 6 years I’ve been renting these houses.  A little more than half of that is free cash flow.  One was my first house; the other was an investment fixer-upper. First bought at a good time; second at the top of the market.  The first’s value has increased about $70,000 since I bought it.  The other is about flat (although I might be undervaluing it a bit).  So a good bit of the equity is rental profits that have been paid back into the houses.  In a push for FI, basic rental houses are a good thing: steady cash flow, minimized taxes, and control for the owner.
  • Commercial Real Estate ($732k) makes up a large portion of my net worth.  These function the same as corporate stock options, except I work for a private real estate development firm.  I get a small ownership of the general partner of each deal – so a promoted interest in returns.  More than half of this amount is comprised of stable properties with longterm debt below 60% of LTV.  Also, these values are stated as modified book values…the equity value is based on either the beginning project cost or the appraised value only if recapitalized with permanent debt.  More details to come on commercial real estate.  Suffice it to say that this business can be very lucrative in the right niche during the right market.  We should be selling a few of these and starting several more deals over the next year.  Fingers crossed, but there could be both increases & substantial money to roll out of this real estate into stocks/bonds.
  • Our Primary Residence ($460k) is now fully owned by my wife & me.  We have been working to prepay our mortgage for years.  Even before we started changing our financial ways, we weren’t comfortable with a large mortgage.  Too easy to end up with a bankrupt company in the real estate development industry.  So we got a 15 year mortgage when we refi’ed 4 years ago and made additional contributions when possible.  Finally, distributions from a property sale in January left us with enough to pay off the remaining $130k.  So here I sit typing in our own house now!

Below are the details:

Net WorthSubtotalTotalComments
Cash/Short Term$50,394
Bank 1$8,629
Bank 2$48,483
Credit Cards($6,718)
401k 1$174,854
401k 2$11,315
IRA 1$78,396
Roth IRA 1$53,458
Roth IRA 2$49,742
Restricted Stock$6,506
Taxable Account$161,773
Rental Houses$180,971
House 1 Value$275,000
House 1 Debt($178,357)65% LTV
House 2 Value$250,000
House 2 Debt($165,672)66% LTV
Commercial Real Estate$732,500Partial Ownerships
Property 1$445,000Retail
Property 2$50,000Hotel
Property 3$12,500Apartments
Property 4$125,000Apartments
Property 5$100,000Office
Net Investment Assets$1,520,409
Primary Residence$460,000
Home Value$460,000
Home Debt$0Hooray!!
Total Net Worth$1,980,409

So in summary, we are thrilled to be at this level of investment assets at this point in our lives.

We aren’t diversified well per the textbooks – 60% of our investment assets in real estate.  But there are many positives to real estate.  Mainly, I have access to deals in real estate that I don’t have with other companies.  I’m not buying REITs and hoping for 10% returns.  We’re doing high risk development deals, and getting a promoted interest on upside returns – akin to a partner in a hedge fund.  This has allowed us to quickly grow to a sizable net worth from almost nothing (except retirement accounts).  I do agree that when possible, we will roll cash from dispositions into general stocks and bonds.

My goal is to be at $2.5M in two years, although I’d be pretty happy at $2.0M.  It will take the real estate market hanging on for another year or so.  Come on baby!

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