December 2014 Net Worth Update

by FI Fighter on January 1, 2015

in Net Worth

2015 has arrived! We are now in Year 4 of the early FI journey. And I can’t say that I’ve ever been more excited about the prospects for¬†the future. ūüôā

Also, at this time, I would like¬†to say congrats to all the other freedom fighters¬†out there who continue to hustle each and every month, putting down a¬†solid foundation that will lead to financial freedom forever and ever after! It’s tough work, but if you stick to it, you will get results! So keep at it!

Let’s see where the net worth stands as we head into 2015:

Net Worth

According to Mint, my net worth is currently¬†$781,996.44. This represents an increase of 2.40%¬†from last month ($763,680.73). I’m still using Zillow’s Zestimate to determine the value of my properties.

Screen Shot 2015-01-01 at 10.38.26 AM

Cash

I currently have $9,323.02 stashed away in my checking account ($8,632.18 previously). I spent a portion of it this month to purchase Chevron (CVX) stock.

I’m still in the process of doing a cash out refi on Rental Property #2, so hopefully cash reinforcements will arrive in early January. This will help me close Rental Property SH #3, and give me some more ammo/cash buffer to work with.

Loans

I owe the following loans:

Rental Property #1: $224,385.39
Rental Property #2: $224,855.13
Rental Property #3: $115,399.80

Total: $564,640.32

Investments

I currently own stocks in my taxable brokerage account. My other investments are in 401k and Roth IRA.

Current 401k: $2,011.23
401k: $126,704.36
Roth IRA: $57,697.45
Brokerage: $22,943.11

Total: $212,134.79

As mentioned above, I added some CVX stock to the portfolio this month. Also, I am now participating in my new company’s 401k plan. The old 401k is still in tact, as I still get discretionary matches on the dividend payouts, and I like the choice of funds in that portfolio. For now, I’m just going to leave the old 401k alone.

Properties

According to Zillow, here are the values of each property:

Rental Property #1: $473,773.00
Rental Property #2: $469,291.00
Rental Property #3: $123,267.00
Rental Property #4: $85,917.00
Rental Property #5: $103,391.00

To keep track of my side hustle deals, I am simply inputing the downpayment amount. Rather than having to keep track of each property value and dividing out my ownership stake (25%), I’m going to keep this simple and uncomplicated. However, these deals were made with the idea of future appreciation in mind, so ultimately their property values do matter!

Rental Property Side Hustle #1: $24,500.00
Rental Property Side Hustle #2: $32,562.00

The following debts should be listed under the Loans tab, but unfortunately Mint forces manually inputted loans to show up under the Properties tab.

Rental Property #4: $63,064.47
Rental Property #5: $124,447.58

Total: $1,125,188.95

Rental properties experienced some movement this month. Right now, I believe Rental Property #1 is being overvalued, and the true price is closer to around $460,000. Rental Property #2 just got appraised at $440,000, so again, the Zestimate is too high.

For the out of state properties, they didn’t move much this month… but are still too low. I purchased Rental Property #5 for $180,000 and it is valued at $103,391. Perhaps that’s the market value for properties in that neighborhood, but I doubt that figure takes into account the extensive rehab that was put in…

Summary

The total value of all assets now checks in at $1,534,158.81, an increase of 1.05% from last month ($1,518,288.51). I also owe $752,162.37.

2014 was an incredible year… I increased my net worth by over $200,000, which is something I never even knew¬†was possible before. As such, I’m getting that much closer to early FI. Actually, after all was said and done, I ended up generating more cash flow than I needed to pay for expenses in 2014. My semi-passive income for the year came in at $33,285.13, which translates to $2,773.76/month, which is more than I need for bills each month.

So, you could argue that I became financially independent in 2014. Realistically, since I am investing in rental properties, I will still need to build up a stronger cash buffer before I’ll feel confident enough to check out of corporate for good. Also,¬†my plans post-FI do involve earning side income, so I’m not too overly concerned with not having enough semi-passive income. More buffer is always good though, and besides I may just stick around slightly longer so that I can find some more good investment deals…

Safe Withdrawal Rate

All along the journey, I’ve never put too much¬†emphasis into safe withdrawal rates (SWR), as I’ve always been more fixated on finding the next cash flow generating deal, instead.

My plan, after all, is to NEVER deplete principal, but instead¬†rely on semi-passive income that will only keep increasing over time. Further, with rental properties, after 30 years, the units¬†will¬†be owned free and clear (mortgages paid off) which will only supercharge the cash flow (even though cash flow WITH a mortgage should be able to outpace inflation)…

And although appreciation is never guaranteed, I’m placing an educated guess that Bay Area properties will continue rising generously over the next few decades. Or in¬†other words, I would hope to be able to sell off one of the “golden geese”¬†to avoid any potential catastrophes.

If I do run the math, anyway, with my current net worth figure, and assuming I need to spend $2,000/month each month, it would look like this:

SWR = 3.07%.

For early FI, I believe 3% SWR is generally regarded as a very good safety number (for 60+ years of retirement), using historical data from the last 100 years, and assuming an investment portfolio comprised of only stocks (e.g. index fund). So, I guess if I was the conventional type, I could liquidate my entire portfolio, convert everything into an index fund to track the S&P 500, draw out $24,000 each year, and simply call it a day!

But I am a bit of a gambler, I guess… And I am a huge fan of real estate investing, so I don’t see myself going down that route anytime in the near future… We’ll see.

Finally, just using simple math (none of this fancy Monte Carlo analysis) and assuming I just need $2,000/month in cash flow to pay for living expenses, my net worth right now should provide for 32.58 years of living expenses.

Regardless of what method you want to use, I think that I’m right at the cusp of early FI and hope to get there sometime in 2015. Let’s keep going strong and make that dream¬†a reality!

 

Fight On!

 

Screen Shot 2015-01-01 at 11.09.22 AM 

2014 Net Worth Summary:

December 2014: $781,996.44

November 2014: $763,680.73

October 2014: $716,124.37

September 2014: $702,618.90

August 2014: $724,476.61

July 2014: $718,780.24

June 2014: $693,514.01

May 2014: $665,115.97

April 2014: $633,456.43

March 2014: $598,435.05

February 2014: $557,154.47

January 2014: $586,137.08

 

2013 Net Worth Summary:

December 2013: $569,022.97

November 2013: $542,725.46

October 2013: $527,010.49

September 2013: $444,860.79

 

{ 11 comments… read them below or add one }

1 Dividend Growth InvestorNo Gravatar January 1, 2015 at 11:18 am

Happy New Year FI Journey!

You are about to cross $800,000 in total assets. Technically, if you sold everything and built a diversified portfolio of dividend growth stocks yielding 3.5 – 4%, your dividend income stream will equal easily $28K – $32K in annual dividend income. This income will be tax-free at a Federal Level, and will likely grow income above levels of inflation. Maintaining a stock portfolio is also more hands-off than rentals.

Either way, something to think about. Of course, you might do better with rentals, due to leverage ( low cost of capital on RE mortgageS)

Good luck in 2015!

Dividend Growth Investor

Reply

2 FI FighterNo Gravatar January 1, 2015 at 11:39 am

DGI,

Conceptually, I LOVE your idea of utilizing dividend stocks for early FI. Like you mentioned, dividend growth companies will easily track or exceed inflation, and dividends are 100% passive income!

The caveat is, unfortunately, that if I were to liquidate my portfolio, Uncle Sam would want a HUGE portion of any capital gains… And by selling the Bay Area rentals, I would incur a substantial tax hit…

The only way around this that I know of is to keep the capital in real estate through a 1031 exchange. That, or personal residence exemption ($250k filing single or $500k with a spouse)… Then, I could access the capital without tax penalty, but that would require me to live in each property for 2 out of the last 5 years… Not the easiest thing in the world to do.

Further, through the use of cash out refis or HELOCs, I can always pull equity out of property and not have to pay taxes on equity… Then, use the proceeds and buy dividend growth stocks that way… You have a lot more freedom to do things with real estate… For whatever the reason, that’s just the way the tax laws are setup. The government rewards you for owning property.

Plus, something extremely valuable that Eric from No Nonsense Landlord taught me is this:
“When you die, the inheritor gets the RE asset, at the new basis. So, if you pay $250K and you may have depreciated the property down to $0 by the time of your death. Even after several 1031 exchanges.

If the property was worth $1M, your heirs could inherit the property on your death, and sell it the next day for $1M, and no tax is due. Their basis is now $1M.

If you sold the property the day before you die, or gave it away and it was sold right away, a major capital gains tax is due on the $1M recapture.

It is a great estate tax avoidance plan.”

So, there’s a lot of pull to keep real estate… And lastly, I guess I’m just really bullish on the Bay Area long-term, and think it still has lots of room to run (both property and rent appreciation). I want to hold on to those assets for as long as I can…

Definitely, I plan on also incorporating DGI into my portfolio and investment plans!

All the best!

Reply

3 LeighNo Gravatar January 1, 2015 at 11:36 am

$781,996.44? I think I should be there in another two years at 28! When do you think you’ll hit $1MM?

I’m probably going to leave my old 401(k) put as well, even though it will start charging me a quarterly fee. The new one doesn’t appear to have an international stock index fund and my current one has a great one, which will be helpful for rebalancing. Did you roll previous 401(k)s into your now old one?

Almost $200,000 increase this year – you are killing it! I would say that you are now financially independent, but you are experiencing the “one more year” syndrome ūüėČ If it was me with your expenses and portfolio, I’d probably be calling it quits right about now. Congrats!!!

Reply

4 SundeepNo Gravatar January 2, 2015 at 10:11 am

FYI, I’ve switched jobs every 2-3 years for the past 10 years or so and I’ve always moved my 401k to a Rollover IRA each time. Basically it moves your money from an account with a few previously selected investment options to the Rollover IRA (which is just a regular IRA) and opens up your investment options to anything on the open exchange.

If you don’t like your 401k options you should always move the money to the Rollover IRA, heck even if you liked the options, you should move it as you can then choose from ANY option.

Reply

5 LeighNo Gravatar January 2, 2015 at 10:20 am

That’s not necessarily true. I make too much money to be able to make direct contributions to a Roth IRA and the only way I can make contributions requires me to keep no Traditional IRAs. So my options for what to do with an old 401(k) are to leave it where it is or roll it into the new one, unless I want to give up my Roth IRA contributions (which I don’t).

Reply

6 FI FighterNo Gravatar January 3, 2015 at 5:43 am

Leigh,

I guess it depends if I work through 2015 or not… ūüėČ

If so, possibly 2015 provided that the markets continue to hold up or keep climbing.

Otherwise, at some point unknown in the future… hopefully.

For now, I’m leaving the old 401k alone since I like the funds I’m invested in.

Perhaps I have the “one more year” syndrome… But I am pretty tired and may check out sooner rather than later.

All the best! You’ll probably get to $1MM before me! ūüôā

Reply

7 Mr. FrugalwoodsNo Gravatar January 2, 2015 at 4:18 am

*Internet High Five*

Leverage is a hell of a drug, huh? There are few imaginable ways to grow your net worth that much in just a couple of years other than real estate. It’s truly a golden time in RE investment. You’ve aptly ridden the wave.

Always enjoy reading your updates. Thanks for being so open!

Reply

8 writing2realityNo Gravatar January 2, 2015 at 7:33 am

Wow, absolutely destroyed it this year, although you’ve certainly changed directions a couple of times in the last six months. I agree with Leigh that you’re probably dealing with a case of the one more year syndrome, although some of that is based on the departure of your original path of cash flow rentals.

Either way, whether it is this year or sometime in the next couple, you’ve crossed the finish line, and it is just a matter of seizing the opportunity and continuing to live life to the fullest.

Reply

9 TawcanNo Gravatar January 2, 2015 at 11:35 am

Wow your net worth is looking great. Leveraging looks like something I should look into more. Looks like it has been good time to invest in RE.

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10 Mr. Captain CashNo Gravatar January 3, 2015 at 2:41 pm

FI Fighter,

That is very impressive increasing your net worth by $200,000 over the course of 2014. Congratulations.

Leverage is a powerful tool. I am using my home equity line of credit to invest in the stock market. It will be interesting to see how it plays out throughout 2015.

Mr. Captain Cash

Reply

11 ELNo Gravatar January 6, 2015 at 2:10 pm

That is awesome you were able to grow net worth by 200K in 2014. I imagine if things stay consistent you will grow it faster in 2015. I would be nice to see what you made in 2014 from portfolio dividend income. My year came in at 3350 in dividends reinvested back into my financial foundation of funds. Good Luck in 2015.

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