Fall is in the Air! August came and went so fast. This month was a good overall month for us despite falling back a little bit in net worth. Our primary residence took a hit in value this month for whatever reason. Its been spiking the last couple months so it was only a matter of time before something changed. We use Zillow as well as Redfin to figure out a rough value for our home each month, but lately these two different databases have vastly different estimated values of our home. Last month Zillow estimated 246K and Redfin estimated 223K, while this month Zillow Estimated 235k and Redfin estimated 223k again. Not sure the differentiation between the two services, but inventory around us has been extremely low, and the inventory on the market now is sitting longer than it was earlier this year.
Besides the Renovations listed below, we had a fun month. We attended the Minnesota State Fair for the first time in years and we saw Lord Huron and Trampled by Turtles in the Grand Stand at the fair. Both bands we really enjoy. One week later we saw Taylor Swift at the Us Bank Stadium downtown Minneapolis. What a show that was. Im sure we’ll get judged for attending a pop concert but wow that was an amazing production. We had great seats too! She brought back some old country tunes and we were belting they lyrics just as loud as the 12 year olds that surrounded us. Such a great time. This August we did a bit of property hunting too, not so much looking to purchase, but planning where we want to end up once we leave the cities. I commute 54 miles one way to work out of town every day, and my wife will be attending school in the city very soon. So it doesn’t make sense for us to move now, but in a few years when she is graduated, we will make a move closer to my work. With her medical job, she’ll have a bit of flexibility on location.
We’d like to live closer to our parents cabin, we really like it there and we’d like to live close enough to make it there for a midweek dinner and boat ride. The great news is the cabin is only 20 minutes from my work so its really a win win situation. Also because its further out of town, money goes a bit further per square foot. We’re narrowing down areas we like, areas that are up and coming and areas that we aren’t interested in. Its super fun.
We hope you had a great August, be sure to tell us about it in the comments!
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Really quiet month this month as a landlord. We purchased a rental property in April of 2018, a single family residence 3 bed, 2 bath, 2 story home. We currently have it rented on a 1 year lease to a single mom and 3 kids. Our tenant recently went through a divorce and did not have full time work at the time of divorce so her credit was not good. On the reports that we did during screening of potential tenants, she performed quite well with the exception of credit. Her references and clients from an in-home daycare she ran all gave rave reviews. We were able to speak with previous and current employers as well. Because of the lower credit, we put her dad as a cosigner on the lease as more of a hedge against late rent. We were able to drive by the property this month to check on it and it looks fantastic, of course we let our tenant know this. We use an algorithm that combines the data of Zillow, Redfin as well as our own formula with recent nearby sales to estimate the value of our property over time. This may not be the best way to track the value of our real estate but besides paying for an appraisal each month, we’ll call it a good estimate for tracking purposes. We are very bullish on real estate as a prime investment vehicle for retirement. We plan to finish renovating our current home, then selling to buy our new primary residence and another rental property. My goal is to own 15-20 units by retirement.
The market where our primary residence is located was red hot in July but cooled off steeply in August. Our algorithm we use to track the value of our current home dropped almost $10k this month. Since our net worth is very low at the moment, this had a huge effect on our net worth for this month. We went positive net worth for a few days this month, but overall our net worth dropped approximately 6K for August. Our stock exposure did very well, but with only $50k in stock exposure, it didn’t have enough of an impact to push us above zero.
Net Worth (-$6083):
We track a 3 month and a 12 month rolling average (Which is skewed since we’ve only been tracking net worth for 6 months) and our averages look like smooth lines compared to the monthly values. See image below.
The yellow line is a 12 month rolling average, the red line is a 3 month rolling average and the blue line is the actual net worth value on the 1st of each month. The idea is that if the blue line is above the red line, our net worth is accelerating, and if it dips below, our net worth is slowing down. As you can see on the right had side of the graph our net worth hit a significant slowdown in August. This was due to a couple reasons. Our exposure to real estate was the main driver and higher than usual expenses in August also had a significant impact.
August was huge month for renovations at the LFF (Live Fi and Free) household. During a wiring project in the kitchen to add an outlet under the sink for a future dishwasher, there was an open neutral fault somewhere else in the circuit. Upon tracing the source of this open neutral, I found it traced to a junction box behind one of the lights on the ceiling. Upon removing the light in the kitchen, it revealed a nasty looking set of wires that was clearly modified by a previous homeowner. There looked to be several issues in there maybe even dangerous. So we decided to call in some help. I started with calling a few handymen I had made connections with during my hunt for a rental property. They both said these issues I was having are over their head. So then I began looking for a electrician. I really did not want to hire an electrician. I feel they are one of the most expensive contractors out there. To their defense, they have lots of codes they need to follow to maintain their license, but I still feel they largely overcharge for the work that they do. But I could not find anyone else willing to do the work so I got some recommendations from family and friends. Since we had an electrician coming to do work on our kitchen, we decided to have some other work done while they are there to take advantage of their expensive trip charges. We had them add wiring for a future bathroom fan, an overhead light junction box in one bedroom and a ceiling fan mount and junction box in bedroom 2. $2100 dollars and three days later, they finished. This was about $800 more than we were predicting to spend. But, the work is done, we are happy. I was able to install a ceiling fan in bedroom 2 which will be really nice since I don’t like to keep the air conditioning very cold in summer. Our other projects included some curb appeal projects. We added a new mailbox to replace our old rusted out one. We added shutters to our front windows and we built some window boxes that we will eventually mount to the front of the house. The window boxes still need to be stained and weather sealed before they are mounted, We also ordered a rug for out living room to break up the expanse of hardwood flooring. It really warms up the room and is really nice on bare feet when lounging around.
We do not actively invest in the stock market, but I do contribute to a Roth 401k to get the employer match through my work and we contribute to a Roth IRA for more experimental purposes than anything. I plan to invest more in the stock market once the market cools off a bit. China is taking a huge hit and their economy is looking quite bearish right now. I think there will be real big opportunities in China in the future, but for right now, we will focus on real estate. Sheridan and I both have a Roth IRA, Sheridan has a self directed IRA that my dad manages, this money is from her 401k at her former employer. And we have a joint IRA account. Our total contributions this month to stocks was $367 dollars of post tax money. Again, this is not our current strong point. Despite my dad being a stock broker and financial advisor, I actually know very little about stocks. Low cost index and mutual funds seem enticing to me, but I will have to study them much more before we invest. I would however like to use Sheridan’s self directed IRA to purchase a coffee farm in Panama. I am currently studying this. I would like to own lots of agriculture and timber in our portfolio as they mature. We are still in the studying phase of this however.
Goals for 2018:
Our goals for 2018 have been taped to the front of the refrigerator since the first day of the year. See the status below.
Purchase a rental property with 10%+ Cash on Cash return — 100% complete
Go on one International Vacation: 0% Complete, leaving Monday Sept 10!
Go on one domestic vacation — 100% Complete, Tennessee in June
Finish All bedrooms and bathroom renovations — 20% Complete, behind here
Go To Gauley River (River Festival in West Virginia) — can’t go this year due to overlap with our international vacation.
Achieve our desired fitness goals for the year — way behind on this one.
We have been very good about scheduling vacations this year. Vacations are very important to us. When I was in negotiations for my new job that I started last November, I took a pay cut in exchange for an extra week of vacation time. I think it is totally worth it.
Home Improvement: $135.90
Our cashflow is currently limited to our one rental property. It spits out $560 gross cashflow per month. After accounting for vacancies, repair, capital expenditures and property management however, our net cashflow is approximately $195/month. Not bad really for a nearly turn-key rental. So far so good. Cashflow is my main investment focus. Primarily cash flowing assets that also tend to appreciate over time, and tax advantaged assets are even better. Tax advantaged assets can be divided into 4 main categories that we will focus one. The US government provides tax incentives to those that provide housing, jobs, food and commodities (Oil). There are many tax advantages to every one of these, and two of them stand out above the rest due to the ability to use leverage. Real Estate and Business. A business however is a bit too active for my time allowance right now though so Real estate is the winner on tis list. Real estate allows wealth to be built in 5 different ways. Cashflow, appreciation (leveraged), principle pay down, depreciation (tax advantage), inflation hedging (decreased purchasing power of the US dollar). And for these reasons, we chose real estate to kick start our wealth.
Our August was a great month for our net worth, we hope to have more like this! Our home renovations are way behind but hope fully they will start coming together in August.
How was your August? Be sure to leave a comment below.
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