Anonymous
Post 12/06/2012 00:20     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Wow, this is great, OP! I am excited to see what you might recommend for me.

HHI is $170K. I make $75K and DH makes $95K. We are both 33.

Retirement: $500K
House: $550K (mortgage is $410K)
No other debts
Emergency fund: $40K
529 for our toddler: $8000




OP here. How much in savings and investments do you have? Your retirement accounts are very high for your age (DH and mine are slightly higher but we are slightly older; but I own a business and put in $40K several years- please elaborate on how yours got so high) . Are any of the retirement funds in a Roth? Where do you currently live?
Anonymous
Post 12/06/2012 00:16     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:New poster here:

HHI: $130k (2 FT Working Parents - 30yrs old)

Primary Residence: $405k (worth), $389k (left on mortgage)

401ks: $12k

Own two cars outright, live frugally, but want to figure out how to get ahead...


OP here. Please provide a breakdown of your monthly expenses.
Anonymous
Post 12/06/2012 00:14     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:New poster here. Thanks for doing this.

DW: 42 YO, making $90,000/year
DH: 43 YO, making $450,000/year

Residence worth $1.8million, mortgage is 600,000 at 4.65%, 29 years left (recent refi). (We might refi soon to 15 year mortgage at 3%).

600K in stock market
600K in retirement accounts

3 kids in private school ($100k/year)
Saving for 3 college educations (we have 100k so far in 529 accounts




Definitely refinance, but not to a 15 year. The rate difference is not worth the compulsory higher payments. It is better to pay it like a 15 year, than be obligated to it. 4.65% is not competitive currently.

You do not have enough risk exposure. Look into real estate or if there is a business opportunity. You might also want to consider investing in private mortgage notes. With a lack of experience it is best to pool your money with a company like Bluewater Funding (I have no interest in them). Have you rolled the retirement you can to a Roth?
Anonymous
Post 12/06/2012 00:04     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Can you put yourself in the shoes of someone who has very little? Is this just a thread for 6 figure families with real estate and investment accounts?


OP here. I think. the key is cashflow, not dollars.
Anonymous
Post 12/06/2012 00:03     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:I'll be following your responses with interest, as I am a self made millionaire (okay, with my husband ) as well.

We are late 40s, make $400K to $450,000 a year, depending on bonuses. Both full time employees. Our kids are 10 and 12.

No debt of any kind.

Assets are retirement tax advantaged funds ($1.3 million); taxable accounts ($600,000); company stock ($120,000); kids' college funds ($140,000). Our house is worth about $750,000.


You do not have enough risk in your portfolio. You are majorly exposed to inflation, which I expect to be very high in the coming years. You need a major hedge. I would look into mortgaged real estate. You should do a Roth Rollover. The taxes suck, but you should begin rolling, especially with taxes where they are today.

The company stock worries me. It is too much tied up in one place, but not enough (presumably) to give you any real benefits. I've never done this before, but presuming it is publicly traded stock, I would put a margin account on it and buy other stock. Margin accounts are non recourse so if the value of the stock goes down they will force sell the stock for you, but never come after you. It is margined against just the company stock. By margining it you get to keep the stock, but buy something that is a hedge to it dropping in value. Margin interest is very low, so this strategy should increase your return by a few percent, while minimizing your exposure. Generally you can margin to 50% of the stocks value.

Anonymous
Post 12/05/2012 23:53     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Holy crap. Most of you are already rich, as far as I'm concerned! If my HHI was over $200K, I'd feel awesome!



OP here. Its not income that matters. It is percentage of income that comes in passively to the amount you have outgoing. when that figures exceeds 100% you are rich. Most people are below 15%. Mine is in the upper 80s and I that is only because we moved to a substantially larger house recently. Technically it is mistake for me to do this (I was over 100% before), but given the ridiculous interests rates currently I considered it calculated risk that what I would save in interest was worth the gamble that I could get back there in 2 years.
Anonymous
Post 12/05/2012 23:48     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:New poster here. Thanks for offering to do this.
HHI fluctuates between 400k and over 500k depending on end of year bonus, split evenly between dual salaries (although mine might go down slightly as I transition to a new role). Own a home worth just over 725k but owe almost 650 on it (we bought with little down FHA but are about to refinance with a conventional loan at a lower rate to lower our payment substantially each month). Hoping to buy a slightly larger home in the 1M range to stay close-in with more room. 10k in college savings for one DC. Max out our retirement accounts and have about 275k in those. No other investments or income. Somehow between childcare, life insurance, car payment (honda civic) and life, we only save about 60k a year. Not sure where to go from here. We are blessed (until the last few years we made very little) but seems like we should be further ahead. We have also had to give money to family over the years (extreme circumstances with illness) so money went there too. Thanks in advance.


What ares do you want to move to? Describe your current property (location, type, bedrooms, etc). You save $60K per year, but have no money in investments or savings? ages?
Anonymous
Post 12/05/2012 23:44     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Thank you for sharing your knowledge and experience.

Husband earns 115K. I recently finished an MA and am looking for work in my new field. We recently relocated and are renting for 2K a month. Drive one old car, paid for.

We are 40 yrs of age, 2 kids in elementary, 8 and 6 yrs.

We have 140K in a money market, plan to use as house downpayment. 2 529s, Neglected right now at 5K each.

75K in mutual fund. Husband's TSP around 100K.
17K in an IRA.

No debt. That's about it.

Would like to plan for retirement, also be very wealthy. Advice? Thank you.


OP here. This is easy, but you may not love the answer. The best thing you can do is buy a multi unit property to live in. I admit that I know DC the best and at your income you may not be looking in DC (where multi family is more prevalent), but I promise you that if you can find something with a basement rental it will make a huge difference financially. It will be minimal to start, but as rents rise and your mortgage stays the same you will ultimately have your mortgage vanish. If you move later in life you will keep the property as a rental. You can do an FHA loan and put down just 3.5% You should do this, as the cash is better kept for investing (I try never to part with cash, unless I am almost certain I can get it back quickly).

And a comment about the car. Drive it until it is dead. I can think of no greater waste of money.
Anonymous
Post 12/05/2012 23:37     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Current HHI is about 300. 220K from one salary, about 75K from the other.

We're both 36. One child. Massive debts.

Currently have about 40K saved in cash. Nothing saved for retirement.

Trying to pay down our school loans. 35K is at an 8% fixed interest rate, 40K is at a 6.3% fixed interest rate. The remaining $200,000 in school loans (not a typo) is at an interest rate of about 3.5% on average. All loans have already been consolidated at a lower interest rate when possible. We also have a 720K mortgage. Home is valued at 930K. Mortgage is 5/5 arm with rate of 3%. Refinanced this year.

Our current plan is to save until we reach 100K in cash (for emergencies) and then work on the 8% followed by the 6% loans. We would like to have another child in the next year or so and want to have enough cash on hand should we need fertility treatments. Because of my age we don't want to wait longer than a year to try for our second baby. We think we need to save for retirement now too and for college for our child, but we've been putting any extra money towards loans and now liquid savings. Not sure if this is the right thing to do.

One of us has the option of 401K but is not contributing under the theory that we're better off putting that money towards the student loans with the 8% interest rate. Monthly, after our debts are paid (also have 2 car payments), mortgage and child care, we have little left over. We're not saving for our child's college yet either. He's 9 months old.

Thank you.
Would appreciate your advice.


This one is hard. It is hard because you don't have sufficient cashflow to do anything. Its not the amount that you make or have left over, but the amount as a percentage of your income. You made a mistake buying a single family house (or condo) of that value. You couldn't afford it (and invest) and it will inhibit your ability to build wealth. Of course you technically have enough money, but not enough to invest. Housing cost is not a variable, so there is little I can do to help you in the near future. Frankly your options are to earn more, sell the house to free up cashflow or accept that you will not be able to do any investing for a good 10+ years. Most people in your shoes would choose the last option. I would choose the first.

That said, I can offer some general advice that will help (but not make you rich). If your employer has a 401K match you must take it. It actually makes sense to put into a 401K if the employer is matching if you have to take credit card cash advances (nowhere can you get 50%-100% rates of returns, like employers provide when they match). Then the 8% loan, then the 6%. Do not pay the other one more quickly. The rate is way too low (in fact it would be a mistake to pay 1 penny more on this than what is due monthly). I would also refinance from the 5/5. I love the 5/5 product, but rates are too low to not do a fixed mortgage today unless you know you are going to move.

Children are very important (I have 2) and we had to do fertility treatments. It is expensive. This is ultimately about choices. Being wealthy is a choice and it involves sacrifices. Personally, I think you need to revisit your priorities. You may decide that you are happy where you are, but you should revisit them to confirm. I mentioned this to a prior poster about a rental property. i told him to sell it if he wouldn't buy it as a rental today. My advice is the same to you. Based on where you are today, does it make sense to downsize the house, sell a car, have less children or delay financial comfort longer. There is no right answer, but you should own your decision.
Anonymous
Post 12/05/2012 23:34     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:
Anonymous wrote:Hmm. Let's see:

Me & DW both government lawyers around 40 yo, making about 250K combined.
$400K in retirement accounts (combination of 401K and TSP)
$70K in an inherited IRA
$85K in investments ($55K mutual funds, $30K CDs)
$70K in cash
$35K in 529 plans for two kids, 7 & 3.
$815K home (zillow), $600K mortgage at 4.125%
$150K rental property out of state, $100K mortgage, rented at $1600/month

Go.


You are in good financial shape and a lot of "experts" would probably say keep up what you are doing. I have no doubt that you will have a comfortable life and retirement. However, to be wealthier, you need to take more risk. You have too much liquid and earning insufficient return (you are in fact loosing money because of inflation). Frankly you can afford the risk and by taking calculated risk it is actually more foolish not to take it. The out of state property is interesting. I have a limited knowledge area for real estate. It holds me back. I presume that you know something about this other area that you have a property. You probably should try to duplicate this property. To be certain I need more information on it.

Can you tell me:

1) property taxes
2) insurance
3) condo/ HOA fee
4) any other recurring fees (not maintenance- ie utilities, alarm, etc)
5) how long has it been a rental. How many months in that time has it been vacant

Once I have that we will contrast it to something here (please provide the neighborhood here you would consider and why).


The property was inherited and has only been a rental a short while. It took less than a week to find a renter. The property is in an area where the real estate market is in the dumps but the area is still desirable so rents are decent. Taxes 1450, insurance 1200, Condo 500/mo; 10% realtor fee, but no other fees, thank goodness.

I'm not sure what you mean by what other area I'd consider and why. The main thing holding me back in this area is the sky high prices I suppose, though I think I'd would be hesitant to buy in any place less gentrified than Mount Pleasant. I'm fairly familiar with Northern Virginia, but not at all with Maryland, and I'm not at all familiar with the apartment or condo markets, since we've never looked at anything other than SFHs. As you've recognized, we are risk averse. We're just not sure how to calculate that risk you're talking about (although your helpful benchmark from a couple pages back makes me feel good about the rental property).
Anonymous
Post 12/05/2012 23:20     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:OP I saw your respnse to 21:38, not sure I understand. Can you run through that with an example? TIA


OP here. Yes. In fact understanding it is really important.

I live and know DC very well, so my example will be in DC. Bedrooms are very important as they drive up rental income. I look for the lowest bedroom to sales price. I just did a search on the MLS and see that 207 R STREET NW Unit# 7 was listed as a short sale at $299K.

You can get an investor loan at 20% down. Accordingly a $240K loan, $60K down. I would write an offer for $299K with seller paying all closing costs. $158K at 4% for 30 years is $1145 (I use mortgagecalculator.org to check quickly). Add $201 for taxes and $310 for condo dues and $10 for insurance you get $1667. It is a 2 bedroom and you should be able to rent at $2200+ per month. $1100/bedroom should not be hard including utilities. It is a condo, so it should be easy to manage.

$2200 x 85% = $1870. $1870-$1667 is $203 x 12 months is $2426/year. $60K down payment divided by $2426 results in a 4.04% cash on cash rate of return. If you factor in the amount you are paying down the loan the total rate of return is increased $217/month for a total rate of return in excess of 8%. If you manage it yourself you only need to multiply times 90% (management should be easy because it is a condo). Total return is increased to 10% (6% cash on cash and another 4% loan pay down).

The above is an illustration only. This is not a property I would buy. I think the cash on cash return is too low, but the return is better than most people on here are currently getting. What I like a lot is that the rents in this area are going up. The property is a condo and easy to start with. Mortgage rates are very low now and there is a lot of logic in locking in long term low interests rates. Property value should increase (but I never count on it). I could buy this property, hire a property manager and ignore it for the next 30 years. I would in 30 years time be receiving after expenses a minimum of $1350 per month (inflation adjusted). It would take the equivalent of 405K in the stock market to get the same return (and to get that same return in stocks you would not be able to take cash of $217/month, inflation adjusted).

Does that make sense? You have to check scores or hundreds of properties to find ones that work, but they exist.
Anonymous
Post 12/05/2012 22:46     Subject: What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Hmm. Let's see:

Me & DW both government lawyers around 40 yo, making about 250K combined.
$400K in retirement accounts (combination of 401K and TSP)
$70K in an inherited IRA
$85K in investments ($55K mutual funds, $30K CDs)
$70K in cash
$35K in 529 plans for two kids, 7 & 3.
$815K home (zillow), $600K mortgage at 4.125%
$150K rental property out of state, $100K mortgage, rented at $1600/month

Go.


You are in good financial shape and a lot of "experts" would probably say keep up what you are doing. I have no doubt that you will have a comfortable life and retirement. However, to be wealthier, you need to take more risk. You have too much liquid and earning insufficient return (you are in fact loosing money because of inflation). Frankly you can afford the risk and by taking calculated risk it is actually more foolish not to take it. The out of state property is interesting. I have a limited knowledge area for real estate. It holds me back. I presume that you know something about this other area that you have a property. You probably should try to duplicate this property. To be certain I need more information on it.

Can you tell me:

1) property taxes
2) insurance
3) condo/ HOA fee
4) any other recurring fees (not maintenance- ie utilities, alarm, etc)
5) how long has it been a rental. How many months in that time has it been vacant

Once I have that we will contrast it to something here (please provide the neighborhood here you would consider and why).
Anonymous
Post 12/05/2012 22:43     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:
Anonymous wrote:Thanks OP-this is 21:38. You are correct-our rental is a former primary residence.

I appreciate your persepctive. I guess we thought that our rental property was building equity and even though we lost some money, the transaction costs didn't make it worth it to sell. I am doing a refi, and we will end up with a + cash flow, but only a few hundred/month. I get what you're saying.

We have about another 300K saved up and I am looking for properties, but am nervous with buying in DC b/c it is so tenant friendly. Do you have any words of advice of where you would buy now?


OP here. You are right that it was likely appreciating, but you could have used the same money to buy something else that was appreciating AND providing cashflow. You really should sell this property and buy something that will generate better cashflow.

As for renting in DC, I have scores of tenants. I rarely have a problem. Screen your tenants well and allocate for rental loss and you will be fine. That said, you should not buy another rental until you sell your old residence. You have to change your mentality first. Until your mentality is about cashflow, not appreciation; it is not a good investment for you.

As to your savings, you seem afraid to invest it (this is a common problem). $300K is way too much to have saved liquid with no plan. Your rate of return is so low that it is likely loosing money when inflation is factored in. I'm not a huge fan of the stock market as the returns are nominal. To be honest I use the stock market for retirement and to have a certain amount in what banks consider liquid fomr (it helps me get loans and leverage my other returns). Saving money like that will prevent you from getting wealthy. You have to get out of a saving mentality and into an investing mentality. Obviously you need a certain amount in savings. Figure out how much that is for you and then I want you to get the rest out.

I would prefer you to be more aggressive than this, but one good thing you can do with your money is convert retirement funds to a Roth. You can only do this is your retirement funds are not with your current employer, but you should begin converting. This makes sense for you because you income is very high and it is likely that it will remain high in retirement. Tax free income is a beautiful thing. You should seriously consider doing it in 2012, as tax rates are lower than they will be next year and I would bet in all future years for a long time to come. It also gives you some very good estate tax deferral strategies, which are probably going to be relevant based solely on your salary.

Incidentally I noticed that you complained about not being able to find an 8% cash on cash return. Please give me a neighborhood that you would like to invest in and explain why that neighborhood. I will show you a property with your desired return (or point out a better neighborhood and why)


I call BS - Troll. There is no place in DC (and this is DCUM) where there is 8%-plus net return on RE investments. Except, high risk (ghetto) neighborhoods where risk out weighs potential gain. What a bunch of crap. Silly advice on marginal investment improvement ( get 2.2% instead of 1.9% in my brother in laws company!) is total bull shit, not helpful except to feed the amateurs that look here for advice.

Show me a high risk, high return possibility and I'll listen. High risk low retrun nonsense is just that.
Anonymous
Post 12/05/2012 22:33     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Hi OP-This is 21:38 again. In regards to the fact that we should have a lot more money....well...

After we moved from that house, we bought a house in 2007 (yes, I know) and renovated it and pretty much put in all of our savings (and then some). I have had it appraised 3 times and it has come in about 300K less than what we put into it and I have had realtors come through and they say I can probably sell for 150K less than what I put into it. Yes, this has been VERY depressing for me, but my husband says and cannot dwell on this and we have to move forward.

I like the house, don't love it.


Your DH is right. My only comment on this is that you ideally should not have spent money on your house that you didn't plan on getting back in cash shortly after spending. I'm sure i will elaborate on this comment further for someone else (I had no idea how many people would post).
Anonymous
Post 12/05/2012 22:29     Subject: Re:What a self made multiple millionaire would do in your shoes to increase your net worth.
Anonymous wrote:Thanks OP-this is 21:38. You are correct-our rental is a former primary residence.

I appreciate your persepctive. I guess we thought that our rental property was building equity and even though we lost some money, the transaction costs didn't make it worth it to sell. I am doing a refi, and we will end up with a + cash flow, but only a few hundred/month. I get what you're saying.

We have about another 300K saved up and I am looking for properties, but am nervous with buying in DC b/c it is so tenant friendly. Do you have any words of advice of where you would buy now?


OP here. You are right that it was likely appreciating, but you could have used the same money to buy something else that was appreciating AND providing cashflow. You really should sell this property and buy something that will generate better cashflow.

As for renting in DC, I have scores of tenants. I rarely have a problem. Screen your tenants well and allocate for rental loss and you will be fine. That said, you should not buy another rental until you sell your old residence. You have to change your mentality first. Until your mentality is about cashflow, not appreciation; it is not a good investment for you.

As to your savings, you seem afraid to invest it (this is a common problem). $300K is way too much to have saved liquid with no plan. Your rate of return is so low that it is likely loosing money when inflation is factored in. I'm not a huge fan of the stock market as the returns are nominal. To be honest I use the stock market for retirement and to have a certain amount in what banks consider liquid fomr (it helps me get loans and leverage my other returns). Saving money like that will prevent you from getting wealthy. You have to get out of a saving mentality and into an investing mentality. Obviously you need a certain amount in savings. Figure out how much that is for you and then I want you to get the rest out.

I would prefer you to be more aggressive than this, but one good thing you can do with your money is convert retirement funds to a Roth. You can only do this is your retirement funds are not with your current employer, but you should begin converting. This makes sense for you because you income is very high and it is likely that it will remain high in retirement. Tax free income is a beautiful thing. You should seriously consider doing it in 2012, as tax rates are lower than they will be next year and I would bet in all future years for a long time to come. It also gives you some very good estate tax deferral strategies, which are probably going to be relevant based solely on your salary.

Incidentally I noticed that you complained about not being able to find an 8% cash on cash return. Please give me a neighborhood that you would like to invest in and explain why that neighborhood. I will show you a property with your desired return (or point out a better neighborhood and why)