Here's our latest Reader Profile Update. Many of you asked for this type of post -- a progress report on where past Reader Profile readers are these days financially. I think you'll really enjoy this. (BTW, if you do enjoy it, you can submit your own update, hint, hint.) :)
Today's post is from JM, who gave us his reader profile a year ago. Here's his update:
I enjoyed the participation and feedback we got from our reader profile in April of 2012, and I thought it would be fun to give a little update on the progress we have continued to make. Obviously, we have aged another year, and are both now 28. Over the past year, we’ve kept up our good savings and investing habits to keep moving in a positive direction. When you combine that with the bull market we’ve continued to experience over the past year, the progress we’ve been able to make is much more than I forecasted a year ago. We still have no family or pets other than ourselves, and have no plans for any additions in the near future.
First, here’s a snapshot of our net worth.
Assets:
Liabilities:
Total Net Worth - $568,000
Our income is up moderately at work, where we bring in a combined $140,000 in base pay. We now have additional revenue streams from the rentals, which total about $24,000 a year. However, after expenses, only about 35-40% (roughly) of that revenue amount ends up as an addition to our net worth at the end of the year, but I expect this to increase as principal is paid down and rents are increased.
We have continued to max out our retirement accounts, and combining that with company contributions and market conditions, we have been able to increase their balances fairly significantly. Along with this, we have expanded our rental property holdings to include another single family home, which we have just finished getting “rental ready” and will likely have occupied by the time this posts. We are currently passively looking for additional property, but will only pounce on the deal if the right one presents itself. Our strategy is to purchase mildly distressed foreclosures which can give us instant sweat equity with some TLC. We continue and will likely continue to hold a large cash balance to take advantage of these deals which often require cash offers, since the instant 10-20+% return they can earn is far superior to me than putting it in a “safe” asset earning only a few percentage points. This may be a bit on the risky side, but I feel at this point in our life we are well positioned to take some calculated risks like this which have the potential to provide significant returns.
When our profile was originally posted, several readers mentioned that we ought to review our asset protection strategy, primarily in regards to insurance, as it seemed to be the one thing missing. I’m happy to report that we have added an umbrella policy to our insurance package. When you combine this with the fact that our rental properties are held within an LLC, I believe we have taken the appropriate steps to protect our assets from any claims. As our wealth and exposure to claims increase, we will continue to review and monitor our protection strategy and make the necessary adjustments.
One other comment, which I will admit got me flustered, was that we must have inherited some money. This is just not the case. As I mentioned at the start of the profile, neither one of us had any school debt due to our generous parents and scholarships. Other than that, it was all us. The “windfalls” we have gotten along the way that boosted us past where we would normally be with our salary alone were primarily due to educated investing and hard work. We both took extended out of office assignments at work, which can allow you to save additional money if you handle the situation correctly since all of your day to day costs are typically paid for by the company. We also received a modest bonus one year at work which we saved in its entirety, but when this is divided amongst all of our years of employment it was almost certainly a smaller bonus than many earn yearly. Other than this, it has just been saving a considerable portion of our salary, making every dollar count, and putting that money to work for us.
I expect we will continue to make good progress. I realize we have been the beneficiaries of a large run up in the stock market, along with a recent modest increase in property values, so I expect our gains in wealth on a year over year basis will not always be as dramatic as they have been in the past few years. While the markets may not continue the bull runs, with our comfortable emergency fund and diversified assets, I expect we will be able to reach our goal of financial independence in a reasonable amount of time, though we need to not lose focus and continue our habits. Our primary goal for the next few years will be to continue building cash-flowing assets in addition to our retirement funds to give us some career flexibility, and also take a little time to enjoy ourselves here and there. I thank everyone for the feedback and hope this update is beneficial to you all!
Today's post is from JM, who gave us his reader profile a year ago. Here's his update:
I enjoyed the participation and feedback we got from our reader profile in April of 2012, and I thought it would be fun to give a little update on the progress we have continued to make. Obviously, we have aged another year, and are both now 28. Over the past year, we’ve kept up our good savings and investing habits to keep moving in a positive direction. When you combine that with the bull market we’ve continued to experience over the past year, the progress we’ve been able to make is much more than I forecasted a year ago. We still have no family or pets other than ourselves, and have no plans for any additions in the near future.
First, here’s a snapshot of our net worth.
Assets:
- 401(k)s – $226,000
- Roth IRAs - $69,000
- Taxable Investment Accounts - $13,000
- Home - $135,000
- Rental #1 - $102,000
- Rental #2 - $140,000
- Cash - $100,000
- HSAs - $9,000
- Other Assets - $30,000 (cars, present pension value, etc.)
Liabilities:
- Home Mortgage - $88,000
- Rental #1 Mortgage - $68,000
- Rental #2 Mortgage - $100,000
Total Net Worth - $568,000
Our income is up moderately at work, where we bring in a combined $140,000 in base pay. We now have additional revenue streams from the rentals, which total about $24,000 a year. However, after expenses, only about 35-40% (roughly) of that revenue amount ends up as an addition to our net worth at the end of the year, but I expect this to increase as principal is paid down and rents are increased.
We have continued to max out our retirement accounts, and combining that with company contributions and market conditions, we have been able to increase their balances fairly significantly. Along with this, we have expanded our rental property holdings to include another single family home, which we have just finished getting “rental ready” and will likely have occupied by the time this posts. We are currently passively looking for additional property, but will only pounce on the deal if the right one presents itself. Our strategy is to purchase mildly distressed foreclosures which can give us instant sweat equity with some TLC. We continue and will likely continue to hold a large cash balance to take advantage of these deals which often require cash offers, since the instant 10-20+% return they can earn is far superior to me than putting it in a “safe” asset earning only a few percentage points. This may be a bit on the risky side, but I feel at this point in our life we are well positioned to take some calculated risks like this which have the potential to provide significant returns.
When our profile was originally posted, several readers mentioned that we ought to review our asset protection strategy, primarily in regards to insurance, as it seemed to be the one thing missing. I’m happy to report that we have added an umbrella policy to our insurance package. When you combine this with the fact that our rental properties are held within an LLC, I believe we have taken the appropriate steps to protect our assets from any claims. As our wealth and exposure to claims increase, we will continue to review and monitor our protection strategy and make the necessary adjustments.
One other comment, which I will admit got me flustered, was that we must have inherited some money. This is just not the case. As I mentioned at the start of the profile, neither one of us had any school debt due to our generous parents and scholarships. Other than that, it was all us. The “windfalls” we have gotten along the way that boosted us past where we would normally be with our salary alone were primarily due to educated investing and hard work. We both took extended out of office assignments at work, which can allow you to save additional money if you handle the situation correctly since all of your day to day costs are typically paid for by the company. We also received a modest bonus one year at work which we saved in its entirety, but when this is divided amongst all of our years of employment it was almost certainly a smaller bonus than many earn yearly. Other than this, it has just been saving a considerable portion of our salary, making every dollar count, and putting that money to work for us.
I expect we will continue to make good progress. I realize we have been the beneficiaries of a large run up in the stock market, along with a recent modest increase in property values, so I expect our gains in wealth on a year over year basis will not always be as dramatic as they have been in the past few years. While the markets may not continue the bull runs, with our comfortable emergency fund and diversified assets, I expect we will be able to reach our goal of financial independence in a reasonable amount of time, though we need to not lose focus and continue our habits. Our primary goal for the next few years will be to continue building cash-flowing assets in addition to our retirement funds to give us some career flexibility, and also take a little time to enjoy ourselves here and there. I thank everyone for the feedback and hope this update is beneficial to you all!
I appreciate anyone who shares their story, thanks JM. Good to have an update as well.
Not an attack, just simple curiosity... I personally feel like there has to be something you're not telling us. That's why we assumed an inheritance last time.
Why do I say that? Well salary's up to $140k, let's say you're paying 25% in taxes, so your take home is $105k. Net worth is $588k and you've been in the workforce for approx 6 years, assuming you graduated at 22.
Yes, there's been a bull market of late, but there was one of the worst bear markets ever prior to that. (Only Old Limey seems to have dodged the worst of that one ;)
How did you manage to "save" approx 93% of your after-tax salary since you graduated college? And really you've "saved" much more than 100% of your after-tax salary, since you weren't making $140k since you graduated college.
Of course these numbers don't add up, you have multiple sources of income, etc etc etc. I'm just using your largest as a basis of comparison. But is there possibly something you're forgetting to mention?
Posted by: Paul | June 25, 2013 at 11:29 AM
Paul, I think you're off a little there. You've included all their assests including home and rentals. That isn't money they've saved, that's just how much those assests are worth.
If they are saving 40-50% of their gross pay for 6 years I could see having that much in investment accounts with some help from the market.
Posted by: Ryan | June 25, 2013 at 03:04 PM
Yes in six years a lot has happened so there is a lot I'm not telling, not hiding, just don't have time. One black box you probably see is the real estate. Collectively the three homes were purchased for about $290,000, and I value them at $377,000. There was something like $25,000 put into all of them so there is a good chunk of sweat equity there.
The biggest chunk is in our retirement accounts anyway and that I can't fabricate or be gifted. They are matched by our company up to 5% and this year we just started getting some performance contributions, but that just started and were capped at 4% of salary.
Also we started contributing heavily to retirement plans in late 2008 and heavily in 2009 onward. This was not due to any market timing, it just happened to be the point in our lives where we started doing it. I don't profess to be a market oracle, but it certainly worked out well.
Cash is just a small amount of savings we each had left over from college plus any money we have socked away since. I mentioned in both posts we had taken out of town assignments for work. Anyone who has taken one of these knows your living expenses are about nothing due to per diem and expense reimbursements, plus they were in the construction field so we each earned overtime since that is how our company works (all hours billable to a project). So yeah we saved a heavy percentage there as well for a time frame of about 1.25 years.
Also you say 25% in taxes, our effective tax rate has been hovering around 15% for the last few years. Minor point but with maxed out 401ks, property tax deductions, depreciation, etc. we lower our exposure.
I guess in a nutshell, you are right, it is not all built from that salary. There is real estate sweat equity, overtime, one modest bonus one time, fortunate market conditions, etc. I would say we just try to take advantage of every opportunity that comes along to throw money in the bank.
Posted by: JM | June 25, 2013 at 03:16 PM
Thanks JM (and Ryan), I was just making generalizations. Sounds good to be true, I couldn't figure out what was missing.
Sounds like you've just done an amazing job. A bit older and definitely jealous. Keep up the good work.
Posted by: Paul | June 25, 2013 at 04:09 PM
Strong work JM- glad you beefed up the umbrella. Best wishes!
Posted by: GranTorino | June 25, 2013 at 09:16 PM
You guys are in a fantastic (and obviously enviable) financial position. Congrats on your hardwork. Thanks for sharing your story (and your update)!
Posted by: Jenny | June 26, 2013 at 06:51 AM
Your investments have done very well over the past year, even after full contributions and employer match.
How are you invested (generally) and do you think you'll remain that aggressive (which at your age is obviously an option, it just seems harder to do psychologically as the numbers get bigger and its no longer play money)?
You guys are doing great
Posted by: Steve | June 26, 2013 at 03:05 PM
That's pretty amazing that u amassed so much at such a young age.. I just know how to spend .... I need to learn your secrets!
Posted by: Joann | June 27, 2013 at 04:15 AM
Very general overview of investments (outside of real estate) - roughly 65% is in S&P 500 index and large cap index funds. Maybe another 15% in mid-caps, 15% in small and emerging markets. Remaining 5% in bonds. I think we will get less aggressive as we continue to amass more because we really wont NEED to take the risks if we get ahead soon enough in life. None of this is exact but it's a rough idea of what we have and what the plans are.
Posted by: JM | June 27, 2013 at 09:23 AM
Great job!
Posted by: Brooklyn Money | June 27, 2013 at 01:16 PM
Im curious how can you move the property into the LLC if (I assume) its just an asset cover -- not generating any income. Isnt it true to be truly protected the mortgage and title must be in the name of the LLC ? My bank told me I couldnt do a transfer deed to the LLC unless the LLC was prepared to refinance the note.
Posted by: joe | June 28, 2013 at 05:59 AM
Joe, I think you will find that there are a ton of opinions on this depending on who you talk to. House #1 is actually a home equity loan in the name of the LLC. House #2 is a private mortgage. The scenario you mention has a LOT of opinions. Some people say the bank can call the note if you transfer to the LLC, some say this will never happen if you keep paying, and some say it's fine to do this if it's for asset protection and you are still the sole owner since you are still signed personally. What the right legal answer is from those things I laid out? If you find the answer let me know, that is still some knowledge I am working to gain. I think what you mean by truly protected is correct though, since you are signed personally, if you were sued they'd still get the property and you'd still be on the hook for the debt. It is likely just any other assets you have that might get shielded. This is why I also carry umbrella insurance.
Posted by: JM | June 28, 2013 at 08:20 AM