Our Retirement home has a small natural lake on it that has attracted a lot of people who enjoy fishing. For the first year we lived here it was a monthly if not weekly occurrence where we would look out the window and see some random people fishing. After finding out the lake had been over fished we have had to put a stop to it, but we made one exception.
Before we moved we had a gap of almost six months where the house was vacant and our “monitoring” system was two different camera systems I had installed that would alert me of any motion. One day while at work a video popped up on my phone showing a stranger walking through our carport and taking a kayak out on the lake. It turns out the kid had permission from a former tenant and thankfully played football with the son of the Deputy that was dispatched. Oops.. Since that time the now 18-year-old young man has managed to be the only person I still allow to fish here. He is a good kid that loves fishing and has dreams of being a pro someday. He is graduating from high school over the summer and has started his first paying job at a local fast food place. He is living at home and although he might get a scholarship for poetry, he is likely going to be paying for most of it himself. Like most kids that are about to graduate from high school he has absolutely no idea of how to managed money. The good part is he knows he doesn’t and is willing to learn.
Although I started working on the outline for this series before being asked for help, I finally have a “why” to drive me to actually work on it. Don’t worry I can promise you that unless you are already Financially Independent, the fact that you aren’t an 18 year old high school student won’t stop you from learning something new. This series will also help me frame up what I will be teaching my own two kids about money.
Bad, Better, Baller
Everyone makes money mistakes in their lives, but the good news is that if you are still breathing then you still have a chance to improve your situation. The reason I say improve is that you don’t need to solve all your money problems, reach Financial Independence, or have millions of dollars. All you need to do is get a little bit better in one area at a time. Through this series I am going to make this simple by showing options for how to handle money.
It is pretty common to see people talk about the value of money in terms of 10, 20, or 30 years. For my examples in this series I will be using 5 years for the simple fact that most people can remember what they were doing 5 years ago and can likely think about what they would be doing 5 years from now.
*Baller – I was honestly torn between “Baller” and “Billionaire” so I reserve the right to change it. For that matter it might become “Batman”. I mean seriously if you can be Batman you should always be Batman.
At some point during my childhood my dad told me, “Prove to me that you can be responsible and I will let you do whatever you want.” On my 16th birthday I picked up my drivers license and my then 11 year old truck and drove it straight to work. When I got home, I told my parents I was going to go out. My dad asked when I would be back and I replied, “4 a.m.” To which he simply said, “don’t be late.” That should tell you a lot about the trust I had gained growing up. I would take the Gallup Strengths Finder test seven years later at my first real job and not surprising Responsibility showed up as one of my top strengths. Achiever, Futuristic, Strategic, and Focus would round out the top five.
The Short Version of how we reached Financial Independence
The longer version
My parents were generally against debt and although they used credit cards, they rarely carried any large balances. We were a lower middle class family for most of my childhood so when it was time for college my parents helped a little with the first semester and gave me the option of living at home in a 700 square foot garage we converted to an apartment which I shared with a couple of other people. It was a great starting point and after that I was on my own to pay for school. Having nearly free housing with utilities split three ways is a great way to avoid debt. The tradeoff was about a 40-50 mile drive to work and school each way. Not everyone is fortunate enough to have a stay at home option, but if you can it is one of the easiest ways to keep your cost low at a time where your income is also likely low or zero.
By my fifth year in college I realized that my original plan to be a Math Professor was probably not the right thing for me. I was paying for college pretty much as I went by working at a large retail pet store while also dabbling in the breeding of exotic reptiles. Those experiences taught me that most people are terrible pet owners and that I personally just couldn’t make money selling any creature that wouldn’t be well cared for. My best friend let me know about a new web hosting company that was hiring and a short time later I dropped out of school and started on third shift as an inventory clerk. Seventeen years later I left the company as a Vice President, but I will save that story for another time. Along the way I was married to my first wife and divorced right around the time the stock market was having a fire sale in 2009/2010. In fact my divorce was finalized on my 10 year anniversary at work which was also a good sign of why work life balance is actually important. Who knew? Besides the “Oh Crap” shock of finding out my marriage was ending, it also meant my plan to enter the market at a time of rock bottom prices was on hold. At that point in my career I was a Sr. Manager and had been working 60+ hour weeks for a decade. I had achieved greater financial and career success in my early 30’s than I really ever thought I would, but I also had this gut wrenching thought that the divorce could have ended with me homeless. OK homeless is a bit of an exaggeration, since I still had a good job/income, but I realized at that moment that I didn’t want to have to work for money forever. It was also pretty obvious to me that I am a workaholic and that my non-work relationships would need more of my time going forward.
Fast forward a few years and I am about to get married again and open up a Mini-Storage facility. We had been looking for a business that would in no way interfere or compete with my career. The business would be something my wife would manage initially and could eventually cover our living expenses. Knowing we wanted to have children, something close to our home with flexible hours was also a goal. We looked into quite a few of the so called “cash businesses” such as Car washes, Laundromats, and Mini-storage. My uncle happens to own a storage facility, so I was able to get a lot of real world information from him about cost. Prior to getting into the business, he and his wife went to clean out a unit for a family member that was moving. My uncle had been considering building a storage facility on land he already owned and his wife was hesitant. As they were loading up the items that at most were worth a few hundred dollars, she asked him how long his relative had the unit and how much she was paying. It turns out she had been renting a unit for about 10 years at $60/month. It only took her a few seconds to do the math and they started construction on their facility as soon as they got back.
For our facility we had three good things going for us. First, we already owned some raw land next to a public lake that was on an interstate highway. This meant that our large sign was all the advertising we needed. Second, we were frugal and in the handful of years we had been together we had saved a truckload of money. At the time of my divorce I was basically debt free with the exception of a small car loan. We lived in a mobile home that was completely paid for and I had already figured out that buying more crap wouldn’t really make me anymore happy. Finally, I had a really good friend who had just built a strip mall and offered to coordinate the build. That friendship started off as him being my mechanic, which is just further proof that relationships matter in life. To this day he is one of my best friends and we have partnered on some other investments. We opened the first phase in 2011 and the second phase (also paid without debt) about a year later. The facility was on about 2.2 acres and totaled 18K square feet of buildings with about 8K of that for enclosed boat storage. This wasn’t a huge facility, but had outdoor parking and plenty of expansion space. My wife ran the facility for about 5 years and the income was enough to cover our expenses and while we use all my income/bonuses to pay off our dream home in Florida. The plan was to keep this facility and have someone run it for us when we moved, but the realtor selling my parents home asked if we wanted to see what we could get for it. We ended up owner financing the sell of the storage which meant very little upfront money after closing cost, but 10 years of loan payments plus a couple of balloon payments.
Mini-Storage – The Good, The Bad, and The Ugly
When I tell people our story, I often will get a follow up about how they have 30-50K and would like to invest in something like Mini-Storage. After sharing the following I will usually recommend they consider paying off debt, getting a rental house, or passive index investing. Mini-Storage is a great investment, but as you will see it takes a good chunk of money to get started.
The Good. Once you get relatively full of customers you have pretty low risk as any one person leaving doesn't matter. If you think about maintenance when you design it, then maintenance can be very low cost in both time and money. If you live close by you can be the manager of it and work a few hours a week by only renting by appointment. If you choose to not offer climate controlled units, then your power cost can be really low. You can setup security cameras, automatic gates, and even self-service kiosk in order to reduce the amount of time you actually need to be there. You get the depreciation expense to offset your income, thus lowering your taxes. For the most part you are dealing with metal or brick buildings and concrete, so they tend to last for a very long time. The more building you build the cheaper it typically gets and $20-30/square foot is completely normal for non-climate controlled buildings. If your occupancy level is good, you could have a pay back of 5-7 years. If you pay attention to where facilities are built, they are typically at the outer edge of city developments. This allows the owner to have a cash producing business that can eventually be level for new construction when the city grows that direction or simply sold for a high price. The laws vary by state, but in a state like Texas the laws are in favor of the owner. In Texas a few notifications and at the time a couple of post in the newspaper were all it took to foreclose on and auction a unit. Storage is generally not effected negatively by changes in the economy. When times are good, people have too much crap and need a place to store it. When times are bad, people downsize and need a place to store things they care about.
NOTE: If you ever need to use a storage facility, make sure you have insurance as they likely have no liability if all your stuff is damaged or stolen.
The Bad. Thanks in part to generally favorable laws, you can expect insurance cost to be fairly reasonable. Even so it was our second highest annual expense. If you are not used to commercial real estate, you will be shocked to find that you may spend 10-20% of your budget on the land plat and permitting alone before a shovel hits the ground. This is why I typically don’t tell someone with 30-50K to build a mini-storage. A sign can cost 15K or more depending on where it goes due to regulations and inspections. An electric gate is typically in the 7-10K range. I will never forget paying for a Golden Cheek Wobler study (it’s a protected bird). It was a $400 permit that said there were none of them on the property. It is also not uncommon to have to plant trees, even if none were ever on the property or pay tens of thousands of dollars so you don’t have to plant trees. The TV shows you see on storage auctions shows mostly the exceptions. You will rarely get enough money from the auction to cover what people owned you, so typically you are better off trying to work with the people to get paid.
The Ugly. If you live somewhere with high property tax rates this can eat you alive. Property taxes were our largest single expense and more than our electric and insurance combined. This is especially bad in areas like Texas where significant portions of their tax revenue from property taxes. Storage of any kind is a good target for thieves and it has been my experience that even with amazing security video, recovery isn't a top priority for the police. I was actually told by an officer that I should just go shoot them if I see them breaking into a unit. I don’t know about you, but I would prefer the police just go arrest them. Just build as many things as you can to make it not inviting for thieves and then assume you will be broken into or vandalized anyway at some point. If you are running it yourself you will likely lose all empathy for people and it is best to just start off strict. You see in the beginning we were very lenient when people paid late or missed a payment. Eventually 99% of those people screw you and leave a bunch of crap in the unit without ever paying you. Almost exactly half of our customers paid late every single month. Although it is great to get some late fee income, it is sad to see people waste money that way.
Pro Tip: The chain driven gates can be opened by simply cutting the chain with bolt cutters. I had upgraded ours to a track driven unit right before a group of thieves hit all the facilities in our area meaning they couldn’t just open the gate and drive in.
Don’t give up on Storage
If you have the financial means and a good demand signal then Storage can be a great investment. The only reason we sold ours was so we didn’t need to worry about someone else running it poorly when we were four states away. Like any business, if you get the right management in place then things will care of themselves. If you like Storage, but don’t want the direct involvement you can be an investor in companies that buy and manage them. You could also look into REITs with Storage holdings. If you want to test it out without so much investment, you could also start with something like open parking storage for RVs, Boats, and vehicles.
Now for the second part of our story, Strip Malls. With the death of traditional malls, Strip Malls are big business. Land one in the right area and you can make really good returns. We have investments in one currently in the form of a Revenue Interest. Profit or Revenue Interest is where you provide some level of funding for a business in exchange typically for a % of the after expenses profit. Revenue Interest is before expenses and is pretty rare. We also have a partnership for a ground up build of a new strip mall where we would be a minority owner. Once again you spend a lot on platting and permitting so don't think you can get into this as easy as buying a rental home. The benefits are that your customers pay the property taxes, utilities, insurance, and typically pay an extra 3% increase in rent. Unlike the mini-storage your construction cost are significantly more and a single tenant leaving has a larger impact. On the positive side the tenants are typically in multi-year contracts. A risk is the changing demographics of an area overtime could have an impact on the success of your tenants and thus your occupancy and rental rates.
Traditional Stock/Bond Investing
We have a decent amount in Traditional IRAs that we will likely convert over time to Roth while in a low tax bracket. Now that all of our income is considered to be passive income the only other retirement savings we are doing is HSA. Outside of those we have some VTSAX, VBTLX, in taxable accounts and an emergency fund. (keep an eye out for a post on HSA & Emergency Fund strategy) Over time I expect to either shift more to stocks/bonds or to rental real estate if we find a good deal. We live within 30 minutes of some of the best family beaches in the country, so rental vacation rentals may be in our future.
Investing in ourselves
Continuing to invest in ourselves and build our own talent stack is a great way to ensure we remain Financially Independent. I have transitioned from reading work emails and department status updates, to financial blogs and podcast. My audiobook consumption has slowed, but feel free to recommend some and I will probably get it. We outsource very little in our lives now so typically we are learning how to do something new all the time. I fully expect that when both our kids are in school full time we will likely work, volunteer, or go to school ourselves. After getting quotes for some electrical work in our area that I ended up doing myself, I am considering going to the local junior college to become a licensed electrician. My wife is likely going to take culinary classes, which is a little strange to me since she is such a good cook already. We are also both watching our diet and have each lost about 30lbs so far from reducing carbs. My wife and I have started a monthly family meeting where we will focus on what we want out of life, what we want as a couple, and what we want as a family.
One of the biggest life decisions you can make is where you choose to live. In the United States, your physical location has impacts on cost of food, cost of commute, property taxes, income taxes, sales tax, home prices, auto/home insurance, and many other expenses you would never even think about. In your wealth accumulation years you may find that you need to live where you can maximize your income even if it isn’t your preferred location.
As you approach a life of FIRE (Financial Independence Retire Early), choosing a location not tied to the need to be near “work” begins to open up endless possibilities. Some people will choose a life of constant travel in one form or another. That may mean RV living or short term rentals around the country or globe. Having two girls under four years old at the time, we decided that for the next 15-20 years we wanted a home base.
Background on our FIRE move (Skip it if you don’t care)
Before I dig into how we ended up in the Panhandle of Florida, let me take a step back to where we came from. I was born in a small town near San Antonio, TX and although we moved a few times in my life I was always within an hour or less drive from San Antonio. My wonderful wife moved from Oklahoma, but spent about half her life in San Antonio. Although many tourist will think of San Antonio as the home of the Alamo and River walk, if you spend a little more time exploring you will find a lot more. With nearly 1.5M people, it is one of the fastest growing cities that is diverse in culture and industry. Most of my working career was spent as a leader in the Web Hosting/IT world, which is something you would expect to say about Silicon Valley. Austin is only about 1 ½ hours away by car as well, which is a little more well known for technology companies. If you have never had Tex-mex food then you are missing out. It is hands down the one thing we miss more than anything about San Antonio. This area of the country is growing significantly due to an influx of people from other parts of the country, like California. No state income tax along with a relatively low cost of living makes this a great place to earn money. You may be asking, “So why did you leave Rusty?” San Antonio is hell for anyone that suffers from allergies and it is pretty normal to have 40-50 consecutive days in a row of temperatures above 100 degrees. As a bit of a country boy, I also didn’t love the growing traffic congestion. The final driver came down to my desire to have more land with some sort of water feature (creek, river, pond). I bought a vehicle from a guy in New Mexico who told me something I will never forget. “Texas is a great place to earn money and a terrible place to own property”. He made his money working in Houston and then retired to New Mexico. All states make their tax money in one way or another and Texas makes a lot of it on property taxes.
Building your own search criteria
I can’t tell you where you should live, but what I can do is help you find the criteria you can use to make that decision. I will also share my own answers to these questions right after this section.
How we chose the Florida Panhandle
After watching our Texas Property taxes (and assessed values) climb over the past 20 years we knew that owning a large portion of land would just mean having a massive tax bill. Paying taxes on something I already own to the eventual point where you can’t afford to own it just doesn’t make since to me. I also don’t want to pay a HOA so they can tell me I need to cut my grass or not park a car in my yard. In fairness the tradeoff is my neighbor needs to cut his lawn more often, but I can’t see his yard from my house so I don’t care. Texas does have agricultural exemptions currently, but if I was a betting man I would say that will be harder and harder to keep in the future. Around the San Antonio area you were able to find 20-150 acres with a nice home and water feature for around 600K around 2005, but by 2016 they were up to 1.3-1.5M. Ouch! Here is our search criteria:
Based on our criteria we looked at Arkansas, Tennessee, Louisiana, Mississippi, Florida, New Mexico, and other parts of Texas. For anyone looking in Tennessee, they do actually have a state tax that you will rarely hear about. The tax is 6 percent on all taxable interest and dividend income over certain amounts. Florida can be quite expensive depending on where you live, and natural disasters can be a concern, specifically hurricanes. We are several hundred feet above sea level, further reducing our natural disaster risk. The panhandle area offered small town living within an hour and some change of multiple airports. The town, schools, and parks are all within minutes of our house. The state makes a lot of its tax revenue from tourism, so our property taxes moved from one of our highest budget items to one of the lowest. Summers are far more mild than Texas and we are thirty minutes from the top rated family beach in the country with blue water and white sands. Property prices were about 40-50% less and that picture is our every day view of our 10 acre natural lake. Gas prices are higher by about 10%, food prices are higher than we were used to with the lack of competition, and sadly Costco is two hours away in either direction. Thankfully we plan to grow some of our own food and will likely add chickens for eggs. The lake is both a source of enjoyment and fish.
If the idea of living in the country and having to drive two hours to Costco isn’t your thing, but the rest of Florida living sounds good you will find plenty of cities that offer a different experience. We love our new home, but I do miss cheap groceries and breakfast tacos.
Things to keep in mind
Find your Happy Place
Armed with your own answers, it is time to hit the internet and begin your search. I found that searching by bands of the country seems to be the quickest way if weather is important to you. We could have ended up in just about any southern state based on our climate preference. After that, start narrowing things down by how the states make tax income in relation to your income/spending plans. Home or rental prices, schools if important, crime statistics, and all the other criteria will help you find some possible locations. No matter how amazing things look from a thousand miles away, use your criteria to narrow things down. When you find a few good candidates, use your valuable vacation time to visit. Go for a week or two if possible and do non-tourist things. Shop at the grocery stores, go to the local parks, to a movie theater, and anything else that will help you get to see what it is like to live there. Happy Hunting!
Site powered by Weebly. Managed by SiteGround