Calculate your Net Worth… and Prepare for It to Grow

Financial Freedom in 2021! Take Action: Day 1

What’s your biggest asset? Some say it’s their house, their education, their health, or even their smile. According to Ric Edelman in The Truth About Money: 4th Edition, your greatest asset is your ability to earn an income.

However, for this exercise, I encourage you to actually take inventory of everything you own that has a cash value and to determine what that value is. This list might include your home, your car, your retirement accounts, your savings and checking account balances, the cash value of a whole life insurance policy, or even a rare beanie baby collection. =) If you can trade it in for cash, it counts.

Also, take inventory of your liabilities. This means debt. Do you owe money on your mortgage or on your car? Do you pay your sister’s ex-boyfriend monthly for a personal loan? Are you still paying student loans? Be prepared to enter every dollar you owe to get an accurate account of your total net worth.

Once you have everything in front of you, plug it all into this net worth calculator. Take that number and write it down somewhere. Print it in large print on a piece of paper or start a spreadsheet to keep track of how that number will change over the year. You need to know this number even if it’s hard to look at. Don’t be discouraged. As of just two years ago, our net worth was declining rapidly, but we’ve grown it by almost a HALF MILLION DOLLARS due to making the changes I’ll be sharing this month.

Stay tuned for tomorrow’s action step…

Our First Rental Property Deal: The Challenges and Rewards

Just over two months ago, my husband and I bought our first rental property! Adding real estate investing to our portfolio is step #9 in our plan to reach FIRE by 50, so we are stoked that we were able to get started in the infamous year of 2020. I turned 41 this year; my husband turned 40. We still haven’t decided if our age deadline of 50 refers to his milestone birthday or mine, but we figure we have about 10 years to develop a strong real estate portfolio.

At my 40th Bday party…
let the FIRE countdown begin!

It all started with a little podcast called Bigger Pockets Money, which introduced me to several personal finance strategies and books to read, while also making real estate investing sound very appealing. I quickly decided that it had to be a part of our early retirement plan, but the extent of my knowledge only came from buying and selling a few primary residences in my life. So, I had to dive in! Thankfully, the free resources available are endless. About 50 podcast episodes and a dozen books later, I felt like we were ready. I started analyzing deals daily, constantly texted my realtor with questions about available properties, and talked my husband’s ear off about the next best Texas town in which to invest.

After months of research, analysis, and attending random open houses in the cities and towns we heard were the fastest growing, it hit us that we were out of our league. There are a lot of big dogs out there in the investing world, and the competition is fierce. Houses sold sight unseen, and several deals went into bidding wars. Out. Of. Our. League.

So, we finally decided to check out a sleepier town we’ve traveled to a few times on family road trips. I started looking up houses for sale and made a list of about a dozen I was interested in. Problem: Our realtor didn’t have access to the MLS there, and I wasn’t ready to involve a new realtor because we were still in the exploring phase. So, I took matters into my own hands. I spent an entire afternoon while one of my kids napped and the others played legos to call or email the listing agent on every single property. I politely asked if they’d be willing to show us their listing in a couple days. Most obliged despite my unconventional method, and we had 8 showings for that one Saturday.

This particular Saturday was during the dead heat of summer… in Texas … during a pandemic. So, we had no choice but to load all 4 of our kids into the minivan with the temperature gauge already reading 100 degrees by mid-morning. We promised them a fun day trip with just a few stops to look at houses. Thankfully, they bought into it, and we took off for the 2 hour trip. We had packed lunch boxes full of favorite snacks and plenty of treats, and we planned a stop at a super cool playground with a nearby hiking trail along a river.

By the time we made it to the first showing appointment, the car was a disaster, covered in snack wrappers, small toys, and countless coloring pages. Plus, our 3-year-old was fast asleep. My husband and I saw the first few houses in shifts. One of us had to stay in the car with the little guy. And of course, all three of the other children insisted on getting out, donned their masks, paraded through each home, and offered their unsolicited opinions. Our 4-year-old kept pointing out which room would be hers, no matter how many times we explained that we wouldn’t be living in these homes.

After hours of foundation issues, bad neighborhoods, major fixer-uppers, and an historic home with a busted lockbox, we made a quick kid-friendly pit stop for ice cream. At this point, the temp had reached 110 degrees outside, and our A/C was struggling to keep up. Everyone was exhausted. We debated whether it was worth it to see the last two houses. It felt like we had struck out in yet another Texas town.

Maybe it was the sugar high from the root beer floats or the sheer determination within, but we decided to forge ahead and see the last two houses. For our second to last appointment, we arrived to an obviously occupied home but no sign of a realtor anywhere. Soon after pulling up, a woman walked out onto the porch and gestured for us to come on in. The realtor was a man, so we knew this had to be someone living in the home. We double-checked the address, and it was correct. My eldest and I put our masks on and slowly approached the door. The house was beautiful, well-kept, and only a couple years old. It was even better on the inside, and the tour of the home was given to us by the current tenant who had just brought her first baby home from the NICU. We kept our distance, did a quick tour, and chatted outside a bit. My husband took his turn walking through the house, and as soon as he exited, we both gave each other THE look. This was it. We knew it.

Just at that moment, the listing agent arrived and gave us the whole story. We were questioning him about why this wonderful house with kind, paying tenants had been sitting on the market for 30 days, especially since the almost identical house next door sold in less than a week for full asking price.

It turns out that because the tenants in this home had a baby in the NICU for the whole month, no showings were being allowed… until that afternoon when we walked in! We asked the realtor several questions about how much rent the house was getting, why it was being sold, and whether the current tenants planned to stay. The answers couldn’t have been better, and we quickly realized that if another person were to walk through this house, we might lose our chance.

We called our realtor; she recommended a great local realtor in the area, and we put in an offer right away. The realtor she recommended specializes in rental properties, so as an added service, he also agreed to write up a new lease when we closed and to do all the negotiations/signing with the tenants, who did agree to stay.

We couldn’t believe it! After months and months of striking out, we finally hit a home run. We felt like this deal was the best scenario we could’ve imagined for our first rental property.

Here are all the numbers for those interested in deal analysis:

  • Purchase Price: $175,000 (25% down, 3.65% APR)
  • Monthly P&I: $598
  • Taxes and Insurance: ~$420/month
  • Additional expense: $50/month landscaping
  • Rental Rate: $1510 monthly (including pet fees)

So far, everything has been great! We communicate with our tenants a few times per month, sometimes about the house, sometimes about our families. My husband has visited the house for a walk-through once since closing and asked the tenants if there are any concerns or any ideas for future improvements. This relationship has helped with on-time payments and upfront communication. We even get a picture of the check each month before it’s sent in the mail and sometimes a picture of their baby to accompany it.

Now, we’re ready to find the next one! We know not every deal will go this smoothly, and we anticipate that problems will come at some point, which is why we have 6 months of expenses in a separate bank account for this property alone. However, the momentum has started, and we don’t want to slow down. With a goal of 2 properties per year, we are constantly on the hunt.

I’ve recently adopted a mantra I heard in an interview with Robert Kiyosaki: “4 green houses and a hotel.” Hopefully we can play our own game of real-life monopoly within the next decade. Stay tuned to see if we win or go bankrupt trying! My current goal is to just land on my step-dad’s version of “free parking” a few times, where the player gets to collect a mix of Monopoly money and the real cash my step-dad tossed in to make the game more interesting.

We plan to play often with our kids as well. Now that our children have joined us on this journey, literally and figuratively, we’re hopeful that they’ll learn investment strategies and important aspects of personal finance much earlier than we did. We’ve also told them that these homes are a key factor in their future post-graduation. More details on that to come…

I hope you’ve enjoyed reading the story of the ups and downs of our first rental property investment. I can’t wait to share more with you in the future! Please subscribe for more posts on our FIRE by 50 journey and additional tips on living a frugal yet FULL life.

FIRE By 50… Starting at Age 40

Can it be done?

I had never heard of FI or FIRE until just before I turned 40 years old. At that point, I didn’t consider it a possibility for me and my family. I was turning FORTY. I was a stay-at-home mom. We have 4 children. We love to travel. Plus, my husband and I had recently chosen to move to an area with an esteemed school district and elevated home prices to match.

FIRE was not in our cards.

However, hearing about this movement and the different paths people chose to reach financial independence piqued my interest in a way that money and finances never had in the past. Money was simply a means to gain possessions, feed our family, and to pay for vacations. I had never considered money as a path to freedom….

But once my eyes were awakened to this idea, my brain couldn’t shut off. I made a list of books to read and devoured them quickly, often calling my husband mid-day, excitedly sharing new tidbits or strategies I had learned. I started binging podcast episodes and blogs during every free moment I had. I spent hours and hours learning. There seemed to be no end to the ideas and creative ways to completely change my life through better money management.

When it finally set in that maybe we could forge our own path to financial independence despite the obstacles I saw in our way, I scribbled down a list of requirements to get us to FI(RE) at 50. With that list staring me in the face, I was again inclined to say, “This isn’t in our cards.” But something stronger was tugging hard at me. It was an adorable toddler with bright blue eyes and blonde hair who was born with an innate spirit of adventure and risk-taking. As he tugged on my arm to lift him in my lap, I looked at that list in a whole new light. The fire in my belly surged and the smile on my face widened. I looked my baby boy in the eye and announced, “We’re going for it!”

Goals to reach FI by 50…

  1. Track spending every month and maintain an annual and monthly budget.
  2. Practice frugality consistently to decrease expenses and increase savings rate to at least 25%.
  3. Pay off debt (car loan) and don’t take on any new debt (outside of mortgage).
  4. Move savings/emergency fund to high yield savings account.
  5. Invest additional savings in Index Funds.
  6. Take part-time work for extra cash (me).
  7. Sell primary residence for profit and set aside funds for real estate investing.
  8. Buy new home with very low interest rate and in low tax rate neighborhood in same school district.
  9. Purchase 1-2 cash-flowing rental properties per year for the next ten years.
  10. Use equity or do cash-out refi of a few investment properties to fund college, technical education, or business start-up for each child.
  11. Continue to decrease expenses as first two children graduate, then sell/downgrade home and purchase one with cash or practice geographic arbitrage.
  12. Wes retires, and we live off of rental property income and investment dividends…

FINANCIAL INDEPENDENCE!

As of today, September 11th of 2020, almost two years into our journey, we’ve accomplished the first 8 goals and started on #9. We’re in the process of purchasing our first long-term rental property. I never thought we’d be this far along in such a short time, but I also recognize that the last several goals will be the hardest, especially finding ways to fund multiple rental properties and learning how best to manage them. But we’ve made it this far, so there’s no turning back now. I hope this blog and my readers can help to keep me accountable. Please share what’s worked for you.

Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.

Lao Tzu