Free Ebook.

Enter your email address:

Delivered by FeedBurner

« Star Money Articles and Carnivals for the Week of May 9 | Main | Time to Rebalance in May and Call It a Day »

May 13, 2011


Feed You can follow this conversation by subscribing to the comment feed for this post.

Totally agree with the "net worth mindset". This is so simple, but try discussing the concept with your friends, and it just brings snickers and jokes.

I'm am definitely very net worth focused, even to the point of driving my wife crazy. I track my net worth every month, but think about it every day.

I bought my first rental property at age 25, and at age 26, I just submitted an offer to grow that portfolio to 5 properties. We'll see what happens. I'd like to being handling my properties full time and living off the income by age 40 (14 years to go).

My income has already more than doubled in my short 4 year career, which has been key to being able to pursue plenty of opportunities to grow my net worth.

What a great "interview". I love his perspective. That's one to pass along to my child.

Wow, that back of the envelope math on house size is very impressive. $150,000 really emphasizes buying only what you need. I like your emphasis on net worth, it's certainly a motivating factor for me.

I am bookmarking this on my computer. I will always read this before I make any major financial decision.

Hi Apex,

That is a great post, with some fantastic wisdom.

Where in the country are you living in? I had no idea that nice houses could be bought for levels like $130K and be able to generate $1400 of rent a month.

Do you have to do a lot of fixing things up or do you have someone to help you?



Amazing what you have accomplished in 40 years, Apex. Thank you for sharing. I think you are right on with focusing on net worth rather than if "you can afford it". I don't remember reading anything about giving but hopefully you can be generous with what God has entrusted to you and your wife.

@ Apex:

Love the idea of keeping track of net worth and learning from mistakes. Would you consider downsizing the house or, since your family has grown, are you now more comfortable with the space? Do you think it's possible to reverse/fix a large financial setback?

The reason I ask is because we (DH and I) have made some mistakes over the past 16 years that have cost us dearly, and I am hoping that we can mitigate some of pain by living lean, downsizing, investing smarter and working hard. And, obviously, by making smarter financial choices all around.

Great post and great story.

I like the thought about basing decisions on net worth. I am going to give that a try!

I enjoyed the narrative of your life so far. You have a great future ahead of you. Regarding the home one lives in, we bought as much house as we needed, with three kids, both houses we have owned were 4Br single story homes in middle class neighborhoods. We have never owned an SUV, they didn't exist in the days when we used to pack our 3 kids and a dog into the car on Friday evenings and drive to our cabin, 250 miles away at Lake Tahoe for some skiing or summer recreation - gas was cheap in those days and the roads were free and clear - it's a different story these days.

I have known several colleagues that were very successful in accumulating rental properties. In my day they also had the benefit of appreciating real estate prices which made it even more attractive.

I also focus on net worth and have a daily record of its value going back to 1992, but I exclude our home and condo since neither will ever be sold. They are both debt free, we live in the home and our son and his wife and daughter live in the condo.

You are going to be a very wealthy man indeed by the time you are my age.
I wish you all the luck in the world. To quote an old English expression, "You have your head screwed on right", a great many people these days do not.

Apex - are you paying for your rental investsments with cash or financing?

Really enjoyed this! I am 26 years old living on the east coast. For the last year I have made it a priority to think first about net worth before making purchases. I do own 1 rental property and I HATE debt. I can tell you have a level of comfort with risk (seriously calculated). I have a couple questions for you Apex. Considering how prudent you are:

1.) How comfortable are you with leverage?
2.) How much down payment do you put on your investment properties?
3.) How many offers do you put out on investment property in a given year?

I’m sure you are on the hunt for property at a discount – I am assuming you get lots of rejected offers – and when they are accepted you are getting them at a great price. True?

Thanks for taking the time to write this! Let us young guys learn from you. I hope you engage the readers today because I am super excited about it.

@Mike - I have bought one house and am currently in escrow on another, both around $100k-$110k, single-family homes in Southern California, and they rent for $1,100.

@Apex - I'm curious how you've financed the 9 properties you've purchased in the past 3 years. We went with the standard 20% down, 80% bank-financed (30 yr fixed) for our first and are doing the same for our second. But since most banks end up selling their mortgages to Fannie or Freddie, they are subject to those organizations' rules, one of which is that there's a limit of 10 mortgages per person (formerly 4) (as I understand it). I'd love to set up some sort of multi-property deal somehow, especially given that the properties I'm looking at produce lots of positive cash flow, but I don't even know where to begin.

Also, speaking of cash flow, while I love your story here and expect my own story to look very similar, I have one slight point of disagreement. As my father-in-law loves to say, "Eat the eggs, not the chickens." The chickens are net worth, the eggs are the cash flow the chickens produce. Once you're at a certain net worth that produces a lot of income, you can ease up a bit. Obviously that's a matter of personal preference, but the point being that while you won't be growing your net worth as fast, you also will not be reducing your income-producing assets if you just spend the "dividends."

Ok! Ok! Ok! I'm going to be completely honest here. Reading this stories make me question my life. The more I do the more discourage I feel. I want to see more stories of screw-ups making it. I don't want to hear a story about someone who has $2 million. I want to hear stories of someone who's net worth is only $10K. These people are more related to my situation and will provide me more motivation. The $2000K net-worth people just discourage me. I feel as though I'll never get their with my paltry efforts. I'm a pessimist, I think. I guess. Thanks for the stories, FMF. :) You rock.

@Mike Hunt,

I live in and purchase my properties in the suburbs in the Minneapolis, MN metropolitan area. All of my properties have been townhouses thus far. The 2000's brought an explosion of townhouse development (at least in our area). As a result the townhouses are much newer, typically sell for cheaper than single family houses, and are where a large number of the foreclosures are. Because of that I don't need to do much fixing up.

The first property I bought needed work and I have decided not to do that anymore. I don't need to in the current environment.

While I appreciate the story and the net worth focus, I disagree somewhat.

Cash flow is most important, not net worth. In this situation the net worth is on RE. That RE creates cash flow.

But if the tenants stopped paying, or left, or something, then the writer would have issues. Because cash flow stopped. The net worth would be the same, but their would now be problems. Because cash flow matters.

Another example. Would you rather own a rental that is worth $130K that rents for $1400 or two $60K rentals that rent for 800 each.

One has more net worth. One has more cash flow.


I am not at FMF's level of giving but my wife and I tithe and support a few other charity out reaches.

This may be a little but of wishful thinking but I would like to grow my business assets and free cash flow to a very comfortable level and then start a foundation where I could spend some of my time advocating and funding charitable causes that are important to me.

That is my long term charitable goal. I hope to be able to achieve it on some level some day.

I really enjoyed your perspective, Apex. I have moments where I am in the net worth mindset, but candidly, I am usually in the payment afordability mind set. I appreciate you sharing your approach to personal finance!

John - Don't be too hard on yourself. It goes back to the old addage - How do you eat an elephant? One bite at a time...

If people can afford $1400 in rent why don't they just buy the townhouse for $130,000? Wouldn't that make more sense?


I have considered downsizing the house and we definitely will when the kids are gone. However at the current time I have the house leveraged with very attractive financing that I use to support my rental business. To extract myself from that would be tricky so for the time being I believe it makes the most sense for me to stay put.

As far as reversing previous mistakes, that depends on how serious but even with very large ones, the bankruptcy laws are going to allow someone a fresh start if they dug a hole so large they cannot get out. So everyone can get another shot. The key to fixing past mistakes is to identify what they were, why or how you made them, and then to either change your own approach/mindset or put in place some guidelines for yourself to prevent you from doing them again.

That is what I have consistently done in my life. In my profile I mentioned that when I made the SUV mistake I thought about how I could prevent it and that is how I developed my $2,500 annual depreciation rule.

Any thing you can specifically identify that led to past mistakes and then create a plan to prevent will be the key to keeping you from repeating them. Then you make plans to create some excess and grow it and you will be well on your way.

It sounds like you are moving in the right direction. Keep moving forward and you will get there. The first steps are slow and sometimes seem like they aren't getting you very far but it's kind of like a snowball. At first it doesn't seem to get much bigger but after a few rolls in the snow it is now big enough to start really growing. Don't give up when the snowball is small.

@Old Limey,

"You have your head screwed on right"

For a logical, analytical like myself, that is a supreme compliment. Much obliged.


I am using both cash and financing.

My previous financial prudence has given me a good cash base to start from. So I have some properties purchased with cash and some with financing. I am out of cash now so I have no choice but to do all financing and it gets harder the more you get as the banks want more security when you have more at risk. But good cash flow from the properties and good income from my job helps replenish the funds to put more down and keep the business growing for the time being.


I am pretty comfortable with "this kind of" debt. What I mean by that is I am comfortable with a fairly large amount of debt if it has two characteristics.

1. it is on an asset that generally holds value or appreciates. This is true of real estate in general the current dip aside.
2. it is on a asset that generates free cash flow.

#1 is very important but #2 is critical in my view from a business stand point. Because if #1 falters, #2 picks up the slack. My properties can keep going down in value for the next few years and it doesn't matter, I make plenty of cash flow on them and have no need to sell them.

For down payment this might sound a little reckless to some but I put down as little as possible. Now in this environment I cannot get by with any less than 25% down but if I could do 10% I would. As long as both rule #1 and #2 above are true. It takes leverage to grow a capital intensive business like real estate. Every dollar of cash you put in is a dollar of cash you need to borrow somewhere else to make the next purchase. Thus I want the minimum amount of money in and the maximum payment terms to get the minimum monthly payment amount. The minimum payment is key to be able to maximize the free cash flow of rule #2.

As far as offers, I actually get most of the properties I offer on. Over half. I search for properties that fit my strategy and specifically that meet rule #2 about cash flow. As long as those are met the price is not critical. I obviously search for better deals and try to get them as cheap as possible but the business does not run on purchase price, it runs on cash flow. Obviously purchase price affects cash flow so in that sense it is important but I think some people believe the key to making money in real estate is getting some kind of a steal of a deal.

Frankly, I am not sure where those exist. This is what the real estate crooks are always trying to convince people of. The housing market is about as free of a market as their is. If the property is selling very cheap, 5000 other people can see that as well. Why doesn't one of them buy it? If its dirt cheap, its a rat hole, that's why its cheap. I try to purchase high quality properties that will give me high quality tenants with minimal property and tenant issues that creates good cash flow. Price is only important to me after those other conditions are met.

You have heard cash is king. My rule is a little different, cash FLOW is king. Cash flow is the life blood of any business and especially real estate. If I have solid cash flow, everything else is secondary.

Apex, you're definitely singing my song in your response to Nate. The purchase price is definitely important, but not as critical as the cash flow. Furthermore, the more you can finance (i.e. the less of your own money you put in), the higher percentage returns you get (letting compounding work faster) and the more free cash you have left over to do the next deal. I feel privileged to know a number of people who are making stellar livings (Old Limey-type net worths) following this exact basic strategy. It's not magic.


See my comment to Nate as there is a lot of overlap with yours.

I did finance my properties with 80/20 mortgages until I hit 4 mortgages and now I need to follow the fannie mae 5-10 mortgage guidelines which are more strict including 25% down. Once I get to 10 mortgages then the financing becomes a whole lot harder.

As far as your disagreement about me with regards to eating eggs not chickens, you don't disagree with me at all.

My profile didn't go very deeply into cash flow but I could not agree with you more. The purpose that I was trying to convey with the focus on net worth was not to draw the net worth down in retirement but to grow it to the point that the cash it produces is self sustaining. That is certainly what I am attempting to do with the real estate business as well. My goal is to get my net worth to a point where I never have to touch any of it. As I mentioned about my real estate business, my goal is not to build it up through appreciation until I retire, sell the assets off and then live off the cash. No, its to get it to the point that it throws off enough cash flow that I can live off that with enough left over to accomplish other goals including growing the business and charity.

So from a personal finance goal my number 1 piece of advice is net worth mindset, but from a business finance perspective my number 1 piece of advice is cash flow. Businesses need revenue, they need profit, they need working capital. But if they have all of those, yes even profit, without cash flow, they will fail. CASH FLOW is business oxygen. Without it, you will suffocate.

I have done a short term business venture with a partner that I didn't expound upon in my profile. It took me 3 months to convince my partner that we were making sales but cash flow was negative and we were going to fail if we didn't fix that. He eventually saw it but it took him too long because he was focused on how well the sales were. When we fixed the cash flow problem, then we could breathe and survive and even grow. Without cash flow you are a dead man walking.


See my comment to Nate and Jonathan.

From a personal finance standpoint I believe the net worth focus has to come first. Cash flow is more of an investment/business concept that comes later. And I agree entirely with you as to its supreme importance which I laid out in my comments to Nate and Jonathan.

"If people can afford $1400 in rent why don't they just buy the townhouse for $130,000? Wouldn't that make more sense?"

CC raises a great point, and when you add the fact that, as you say, there is a glut of townhouses in the area, something doesn't quite add up. I wish you luck, but something tells me you either have some tenants with 500 FICO scores who will turn out to be trouble, or you're going to have trouble renting them out as soon as the economy picks up a little and people want to buy rather than rent.

@ Apex,

Thanks for answering my question.

How do you go about finding the right type of renters? Have you had any flake out on you during your 3 years of doing this?

Do you depreciate your property from a business perspective to offset your rental income and thereby be more tax efficient (realizing that this brings down your basis price of the house when you eventually sell)?

Great stuff.


"If people can afford $1400 in rent why don't they just buy the townhouse for $130,000? Wouldn't that make more sense?"

1) Pop made a good point about people with low FICO scores. Many people simply have poor credit and can not qualify for a mortgage. But you usually don't want to rent to people with awful credit.
2) People who have no cash for a downpayment. Something around 50% of Americans live paycheck to paycheck so they don't have money for the 10-20% downpayment. They may have perfect credit but just not have cash on hand to buy.
3) They simply don't want to buy. Many people prefer renting for a variety of reasons. The recent real estate crash has also soured many peoples opinions against buying.
4) Some situations renting makes more sense all around. Anyone living somewhere temporarily for 1-2 years or so would generally be much better off renting.

Apex, you're doing great and should serve as a role model for many people. I specifically like how you have a net worth >$1m yet regret still buying that SUV and bigger house.


I seem to recall a variety of profiles from people at all stages of life and various stages of financial success. If you go look at all of the profiles I think you will likely find some that you can relate to.

@ Pop and @CC

Um… I would ABSOLUTELY rent a townhouse for $1400 a month as opposed to buying it for $130,000!!! Are you kidding me? I am very focused on building my career and have little interest in becoming a full time landlord when (not if) I have to move to another city. I do currently have a rental – but only because I became an “accidental landlord”. Why would I want to own a house and keep up with all the maintenance etc. AND have a debt load of $130,000 when I am working 70 hours a week as a professional? Oh and by the way there is a good chance that I (and others in my demographic) will move within a couple years to take international or cross country assignments.

Over the last 2 years my income has gone from 38K to 70K to 110k and I am in negotiations right now for 140k+. I would not have been in the position had I been focusing my attention on a house I left 3 cities ago. I NEED guys like Apex when I step into a new city for a year or more.

I seriously thought you were joking when you asked that question. Sorry if this came off as abrasive (I didn’t intend to) – I just want you to understand that there are many compelling reasons to rent. In MY CASE – I get a better return on my time/energy/efforts from investing in my career than in managing a rental property in every state I work in (that does make sense right?)!
I know the Minneapolis MN area very well and I can guarantee you Apex has many professionals renting his townhouses who have come to the exact same conclusion (perhaps the hard way – by becoming an “accidental landlord”).


I do all my rental advertising on craigslist because its free and frankly thats where 80% of decent rental applicants are looking. I also do full credit, and background checks as well as verification of income. I will rent to people with poor fico scores but not to people with many recent delinquent accounts. Many people have poor fico scores because they recently got forclosed on which gives me very little worry. Others had something bad happen to them and there credit has been clean for a few years or some others just seem to be unable to quite keep ahead of everything, they have a couple unpaid util bills or something. Those don't worry me either. I won't take people with lots of delinquent accounts, I won't take people that don't make atleast 3 times the rent in income and I wont take people who have ever been evicted, EVER. Any history of not paying rent and being evicted means you could do it again and I will not take that risk. I also do not take section subsidized renters. The rent is guaranteed by the government but they have nothing invested and I believe a much higher likelihood they will treat my property like crap. I have seen evidence of that in other areas and I simply won't get into that business.

I did make 1 mistake of renting a unit to 3 boys recently out of high school. I should have known better and my wife thought I was a little crazy but didn't really tell me that other than to just say are you sure. I told her after wards if you think I am making a mistake I would welcome you flat out telling me I think this is a bad idea. Anyway, they broke the lease early and did damage. I kept their deposit and got them to actually pay and extra month rent to let them out of their lease and move out early. I ended up getting enough money out of the situation to cover all repair costs but it was a head ache and I will be more careful in the future.

Other than that I have never had any issues. No one has ever not paid rent, or done any other real damage or given me any real trouble. I treat my tenants well. When their is an issue I am usually out to the property the next day to address it. I have heard from other people I know who rent in the area and from other tenants that my tenants think they have a good landlord. I think that is part of the key. Be careful to get a decent tenant and treat them with respect and dignity.

@Pop and CC

Nate and Jim did an excellent job of answering your doubts. I have nothing to add to what they said.

This was another good post. I notice a certain pattern mentioned in books such as "Stop Acting Rich" and "Millionaire Next Door". Many of the profiles here are educators/engineers/computer programmers. Some people seem to comey by a wealth mindset more naturally than others. The frustrating part is I think many of these posts are just preaching to the choir and not getting into the minds of people who need to read them most.


I wanted to comment on your statement about friends making jokes about focusing on net worth. Unfortunately you are correct in how most people view that topic. It's not a sexy topic and it's not something most people want to give a little bit up now to plan for later. However, when you are 50 or 55 and retired, living comfortably, doing what you want, travelling, etc, and they are still working a 9-5 until they get to 65 or 70 and then scrape by on a meager savings and small Social Security, I assure you, they will no longer be laughing. And for what? To have a few more gadgets, or a newer car, or ... ahem ... "a bigger house (oops)". None of that is going to make your life any better.

Life is the cruelest teacher but also the most effective. Unfortunately, if you don't learn this one until retirement, there is no do-over.

@ John. I think maybe you didn't read my profile. Unlike these other posters I live in a high cost area with only a mid-5 figure income. I was a financial wreck in my teens and early to mid 20s (replete with a bankruptcy at age 21). When I was 26 and got my first decent (but not great) paying job, I turned that around. At that time I had about 14K worth of debt and a job that paid 27K a year.

Also, you admit to being a pessimist. I have that trait, too. A little pessimism is ok, but you will have to train yourself not to overdo it!

I highly recommend reading "The Difference" by Jean Chatzky (It's been mentioned on this blog). I think it will help you a lot!

John --

FYI, here is Mark's profile:


I completely agree with your statement about some people coming by a wealth mindset more easily.

I used to believe that if you could give people the information to make better choices that most would. Unfortunately I have learned that is rarely true. People have to be ready for the change to start with, you can't make them change until they are ready. And even more important, people who say they are ready are often only ready for easy changes. When you tell them that this means, driving used cars, no more designers clothes, not eating out nearly as much as they do, not having the premium cable package, etc, etc. At that point they tell you I can't do that. And they do actually use those words. I CAN'T do that. In truth it's not that they can't but that they won't. They usually believe that is some kind of back to the stone age type of deprivation that they would not subject their worst enemy too.

I know of multiple people who have tried to personally help groups of people with multiple sessions on proper financial discipline. None of them that I know of were successfully in really changing anyone's behavior long term.

It seems once someone has set their financial path, they need to come to an epiphany on their own or they are nearly immune to outside assistance. I think this is likely the same behavior patterns that are seen with drug addicts and alcoholics, etc. The behavior is addictive and emotional. It is immune to logic and reason.

I think its really important to train people prior to them setting their pattern of behavior. Once the behavior pattern has started, getting it altered is very difficult.

That is why I am trying to give my kids tidbits of financial advice along the way, to help steer them towards a healthy path.

@Mark & John,

I am accused of being a pessimist all the time. I call it realism but others think I only see the negative. That is not true. What is true is I always see the negative first. Once I know the negatives now I can look for the positives with an understanding of what could derail them so I can move forward in a way that helps to manage and mitigate the risk.

So don't be too afraid of your "pessimism". A little fear is healthy. Just don't let it paralyze you and keep you cowering in the cave. Instead use it like a flashlight to light your path forward to see the potential pitfalls. But you have to leave the cave and move forward on the path.

@Mike Hunt,

I realize I neglected to answer your question about depreciation.

The answer is yes, the properties get depreciated. You cannot depreciate the land so an allocation is made to the building and residential real estate is depreciated on a 27.5 year schedule. It's actually not even a matter of choice. You have to depreciate the building, if you don't the government will just assume you did and tax you back on the difference when you sell.

Because of the small amount of principle payments early on in the mortgage and the good sized building depreciation this reduces the taxable profit from the rental business considerably. Now later on when you are paying mostly principal and the depreciation has expired or does not equal the principle payments then its a net negative tax event but in the first 10-20 years its going to reduce the tax bill.

Prior to this downturn when properties cost considerably more many investors had no cash flow on rental properties. Any that did had such small profits that they depreciation made it such that they had no taxable income from the business. In this environment you should definitely be able to get enough cash flow and profit to have taxable income left even after depreciation. To give you an idea, I mentioned that I have 60K of cash flow on my 9 properties. I have about 65K of profit, and of that 65K profit, only about 20-25K will be taxable after depreciation in 2011. 2031 will be an entirely different story.

"I am very focused on building my career and have little interest in becoming a full time landlord when (not if) I have to move to another city. I do currently have a rental – but only because I became an “accidental landlord”."

Thanks for the laugh Nate!!

I'd love to hear the stats of your average renter- FICO score, income, average liquid assets.

Of the four categories you raised, I wouldn't want to rent to three of the four, and regarding the fourth one, people have very short memories, people with stable employment and good jobs will want to buy again.


My average renter is usually pretty good shape, FICO in the low to mid 600s, but I have had some in the 500s and some with FICOs above 750 (I like those obviously).

Income is usually in the 45-70K range with the average around 55K, although I do have some who are a little lower in income but I have inherited some of them. As long as they keep paying they are welcome to stay. Most of my units are 4 bedroom so I am usually renting to young families or single moms with kids. I like those kinds of units because families with kids are more stable and tend to stay longer.

I don't have any details on assets liquid or otherwise because credit checks do not show that. I have a retired ford assembly line worker who I suspect has a nice pension and some good retirement funds, but most everyone else I suspect does not have much in the way of extra reserves. I do not doubt that if any one of them lost their job they would quickly find themselves having trouble paying the bills. I don't think that's a whole lot different for most home owners either unfortunately.


regarding stability of renters,

My 2 bedroom unit has been unstable. 2 renters that were each 6 months only. But now I have a couple and the husband is chiropractor school so they are there for 3 years.

In my 4 bedroom I have had one missionary family who was known to be heading over seas in 6 months. Every other couple has been there for the entire time that I owned the property. I have many on 18 month leases with some on 2 year and 3 year leases. Some will eventually want to own again, but there are plenty more lined up to rent. They literally beat the doors down when I place an ad.

Given what sounds like a very strong rental market, why do you sign 2-3 year leases? Do those leases have built-in rent increases? I wouldn't think you'd want to be locked into a 2-3 year lease with someone you don't have history with (when 1-year leases are common) when there's lots of demand for your units.


I do rent increases when it makes sense, doing it on two units right now. But in my mind, stable tenants outweigh rent increases. It's easier to just keep collecting a check than it is to have to prepare a property for turnover and do showings for a new tenant. Plus one month of missed rent in transition between tenants is equal to 5 years of a $25 rent increase. The biggest savings in real estate in my opinion is stable long term good tenants. So I would sooner have the longer term lease, that keeps them from thinking about moving. Rents are slightly rising but not enough to be missing out on tons of money. The good will that can be garnered by stable rent is worth something too. If rent was going up $75 per year then I would be less likely to do long term leases. But we need a lot better employment and wage growth before anything like that would be sustainable.

Good point on rent increases. I've never had to deal with that yet, and will have to come up with a good strategy on that. We did raise the rent last month by $25 because our tenants wanted a discretionary improvement and couldn't pay for it upfront. We'll have to figure out a strategy for when and how to implement standard increases. for an excellent web site that I frequent on a regular basis.

The comments to this entry are closed.

Start a Blog


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.