Under the Microscope: The Mad Fientist

Under the Microscope

Last year, I asked you what you’d like to see more of on this site and the biggest request was to see more stories of people who are on the path to early financial independence so today I am introducing the Under the Microscope series, the series where we peak behind the curtain of someone’s journey to financial independence and offer advice to help them reach FI even sooner!

The second most-popular request from my survey was that you wanted me to write more about my personal story so to kick things off, I decided to go under the microscope first! Be easy on me :)

Occupation

Software Developer

Current after-tax savings rate

My savings rate in 2014 averaged over 73% but I expect that number to be higher this year because my expenses have dropped dramatically.

Bonus: If you want to keep track of your own savings rate, click here to download a free copy of the spreadsheet I used on my own journey to financial independence!

Time to FI

Since I figured I’d continue earning money after leaving my full-time job, I decided that I would be FI once my savings covered my essential expenses. My discretional spending would then be funded by my supplemental income from my side projects (i.e. websites, mobile apps, etc.) that I enjoyed working on and planned to continue after leaving my job.

When I reached the point where my essential expenses were covered though, I realized it wouldn’t take too much longer to build my savings so that my discretionary expenses were covered too.

Now, all of my expenses are covered but when I tried to quit my job last year, I got an offer I couldn’t refuse so I’m currently still working (see The Power of Quitting).

Since my wife isn’t FI yet, I figure I’ll keep working until I either get sick of it or accumulate enough money so that neither of us has to ever work again.

I’m also hoping for another bear market so that I get one more chance to buy a bunch of shares cheaply before I give up my salary.

To be honest, I will likely work longer than I actually need to because I think I’m going to have trouble finally pulling the plug. For the past year, I’ve finally allowed myself to spend freely, which after a decade of watching every penny has been a great change. I worry that that carefree feeling could disappear when I stop having a steady income so padding my balances a bit more while doing a job I still enjoy seems like a good idea for now.

How did you get on the path to FI?

I nearly drowned for a few pennies once.

To keep me occupied as a kid, my family would throw coins into the pool without me noticing. As soon as I spied something glimmering on the bottom of the pool, I would spend the rest of the day diving for money, only breathing when absolutely forced to.

My obsession with money continued into my teens when my dad bought me four shares of stock: one share each of Pepsi, Wendy’s, Disney, and my dad’s employer, ADP. The only section I cared about in the newspaper was the stock quotes page and I would check obsessively to see how my stocks were doing. I couldn’t wait until I had a real portfolio to manage someday but those four stocks kept me occupied until then.

When I got a job after college, I finally was able to start my own portfolio so I began building up my savings.

My girlfriend (now wife) and I bought our first house together and luckily sold it for over 50% more than we bought it for, just two and a half years later (immediately before the financial world collapsed), and that became the base I’ve been building on ever since.

I was an above-average saver throughout my 20s but it wasn’t until I stumbled on earlyretirementextreme.com that my savings went into overdrive.

Before finding ERE, I had used my savings to fund multi-month sabbaticals from work every few years but I wasn’t really saving for anything in particular (I just liked the idea of having a lot of money in the bank and a portfolio to manage). Once the FI lightbulb went off in my head though, I put every spare dollar towards the pursuit of financial independence and started doing a lot of research to figure out how to get there even quicker.

FI Strategy

Since I had never been a frivolous spender and already had relatively low expenses, my strategy focused primarily on the income side of the equation.

My approach to increasing the amount I could invest every month was two-fold:

Reduce tax burden

Every dollar that I didn’t pay the government was another dollar that went towards my FI savings.

I could see that people on the path to financial independence were drastically different than “normal” people so I figured the normal advice didn’t apply to those of us pursuing FI so I began researching ways to legally exploit the tax code to help me (and you!) reach FI as quickly as possible.

I currently max out my 403(b), HSA (see why I think it’s the Ultimate Retirement Account), and SEP IRA every year.

Increase supplemental income

Since my initial plan was to fund my discretionary spending with supplemental income, I decided to focus on building my supplemental income streams but chose to limit the work to only opportunities that had unlimited upside (i.e. those that didn’t require exchanging x hours for $y) and that I enjoyed doing and would continue doing after FI.

Investments

I’m invested primarily in low-cost index funds with the following allocation:

Total Stock Market: 44%
S&P 500: 9%
Small Cap: 12%
International: 14%
Cash: 21% (see below for why this value is so high)

Future Investment Changes

I’m sitting on a lot of cash right now because I’ve yet to invest the proceeds from our recent house sale. I’m also bad at manually buying investments in my taxable account so I was already sitting on too much cash even before the house sold.

The reason I’m waiting to invest that cash is because I’m currently applying for a UK visa and the British government wants to see that I have enough cash (they ignore invested assets) to support myself so I’ll need to keep that money in cash until my visa application has been approved.

Once that happens, I will invest the entire lump sum into a newly created Betterment account (see this post for my reasoning behind that choice) with a 90%/10% stock/bond allocation.

I also plan to adjust my overall portfolio allocation a bit this year but I need to do some more research first because I want to make my allocation as tax-efficient as possible (look out for an upcoming post on that topic soon).

Post-Retirement Income Strategy

After leaving my job for good, I plan to build a Roth IRA Conversion Ladder and will use that to sustain myself after the initial 5-year waiting period. My taxable accounts and supplemental income will provide sufficient income in the meantime.

I have a love/hate relationship with real estate (I love the idea of it but I hate actually dealing with it) but I may decide to invest in rental real estate in my hometown of Pittsburgh, Pennsylvania.

To learn about real estate and the Pittsburgh market in particular, I may get my real estate license and work for a bit before diving in myself (why not get paid to learn something rather than pay to learn something?). This is just a pipe dream at the moment though so it’s possible I’ll just decide to stick with stress-free index funds.

Post-FI Plans

Once my wife stops working, I’d like to spend a third of the year in America (where my family lives), a third of the year in Scotland (where my wife’s family lives), and a third of the year somewhere else in the world.

I plan to focus more on music (classical piano, blues guitar, and synth programming), expand my efforts on my side projects, write some computer programs that I’ve been planning to write for a while, and even potentially get a job in a completely new field that interests me (you can see why I shy away from the word “retirement”).

Best part of being on path to FI

While achieving FI can take some time, the happiness you get from realizing you’re not trapped for the next four decades is immediate and the power you get from having a bunch of money in the bank follows shortly after.

Once you have that F-You money, as my buddy Jim from jlcollinsnh.com likes to call it, the world is yours. You can make demands that you wouldn’t have thought to make before and your life becomes even more enjoyable as you pursue the ultimate goal of financial independence.

Biggest challenge while pursuing FI

I’ve tried to keep my pursuit of FI quiet offline because I don’t like people knowing how much money I have saved and I feel weird talking about money in general with friends, family, and other people who are on the “normal path”, since it’s so drastically different than the path I’ve chosen, so the hardest part has been dealing with the awkward conversations that I’ve had after more and more people in my real life have found out what I’ve been up to with my finances.

Questions for your fellow fientists

I’d specifically like to get some feedback from any real estate people out there…

Is it worth pursuing the idea of purchasing a few buy-and-hold, single- or multi-family rental properties? If I decide to hire a management firm, do they really take on the bulk of the hassle/stress or does quite a lot of nonsense seep through?

Any parting advice?

Focus on the things you can control (i.e. the amount you save, the amount of taxes and fees you pay, etc.) and ignore the things you can’t (i.e. what the market is doing, etc.).

Once you have some F-You money built up, use that power to create a better life so that you are happier while you pursue full FI. It’s amazing what you can get when you just ask but people are so afraid to ask, they never do. F-You money is a ridiculously powerful thing so use it when you have it!

Mad Fientist’s Comments

Even though it’s weird giving myself advice, I know there are things I can improve on so here are my two cents…

It’s obvious you can’t be trusted to manually invest your taxable money, since you have such a high percentage of your portfolio in cash, so you need to automate your taxable investing. Once you get your Betterment account set up, schedule automated investments to take money out of your checking account and invest it every month. This will reduce the amount of cash you have on hand and will increase your overall returns.

It’s also apparent you like to plan things out a lot before pulling the trigger on anything. While it’s probably a good idea to do a lot of research before diving into real estate, make sure you don’t just research for decades and let good opportunities pass you by. You’ll learn more by actually doing so you’ll have to just dive in at some point if your really want to get into real estate investing.

Finally, be careful with the slippery slope of “saving up just a bit more money before quitting”. It sounds like you have enough saved up to allow you to take Mr. Money Mustache’s advice and remove money completely from your decision-making process so if you still enjoy your job and would keep doing it for free, by all means keep doing it but if not, find something else that you would be happy doing for no pay.

Besides that, everything looks great. Smart guy :)

Reader Suggestions

What advice would you give the Mad Fientist? What else do you think he could improve on?

If you’d like to go under the microscope yourself, just respond to the above questions (feel free to add or omit any) and email them to me at [email protected] with the subject “Under the Microscope”!

Related Post


Want to achieve FI sooner?

  1. Sign up for a free Personal Capital account to start tracking your net worth, monthly spending, etc.
  2. Enter those numbers into the FI Laboratory and begin charting your progress to financial independence
  3. Download the spreadsheet I used on my own journey to financial independence to determine which expenses are delaying your progress the most
  4. Reduce or eliminate those expenses and achieve FI even sooner!

103 comments for “Under the Microscope: The Mad Fientist

  1. April 21, 2015 at 12:12 pm

    Glad to see a post from you Mad Fientist! I have the same problem as you when it comes to my after-tax brokerage account. My 401k, HSA, and Roth IRA are all set it and foget it at this point. I don’t have to think about it, they just go into their allocated index funds (Vanguard for the most part). But then when I have cash to deploy in my after-tax account I freeze. I start over thinking it. Should I go the individual stock dividend growth route, should I throw it all in VTSAX, should I open a Betterment account, etc. I hope I can settle on a path soon.

    • The Mad Fientist
      April 21, 2015 at 4:29 pm

      It’s terrible, isn’t it? I’m determined to get everything automated as soon as I hear back about my UK visa!

      • April 23, 2015 at 2:17 pm

        MF,

        I do not know how long you need to keep the money in cash for. I also do not know how much cash you have. So for the purposes of this exercise, I am going to assume it is $210,000. I am also going to assume the need is for a few months – for example 6 months. In this case, you can potentially use derivatives to remain invested.

        One option could be futures on indexes. If you purchase a futures contract on S&P 500, you are essentially buying $100,000 worth of stock ( each point on S&P 500 is worth $50, so 2000 points times 50 – you get the idea).

        The “nice” thing with futures is that margin requirements are really low – you can essentially put down something like 5% – 10% down. This could be dangerous if people with $10,000 try to leverage themselves and buy something worth $100,000. But since you already have $200,000 in cash, you are just fine. So for each $100,000 in cash, you can essentially purchase 1 futures contract on the S&P 500. And you should receive most of the return on US stocks. IF they drop by 5% however, your broker might require extra margin of say $5000/contract ( 100 S&P 500 points times $50/point)

        I have personally never traded/invested in futures, but I have read extensively on the topic so I thought this could be one option for you.

        On a side note, if you marry a British Citizen, can’t you become British resident?

        • The Mad Fientist
          April 27, 2015 at 10:53 pm

          Derivatives intrigue me but like you, I’ve never bought or sold any. Luckily, I just got my UK visa so I can finally deploy all of the cash I’ve been sitting on!

          Yes, I can become a British citizen eventually but I need to get the UK spouse visa first. The visa I got will allow me to live and work in the UK for 2.5 years, I can renew it for another 2.5 years, and then I can start the citizenship process to get dual citizenship. It was a lot easier a few years ago but they introduced a lot of new anti-immigration policies sometime around 2012 :(

  2. Logan
    April 21, 2015 at 12:20 pm

    You mention that your wife is not FI yet. I’m just curious why you look at your savings/income separately?

    • April 21, 2015 at 2:06 pm

      I am curious about the arrangement you have with Jill as well. Does it have to do with you being from separate countries? Surely, it can’t cost that much more as a couple. Or, perhaps she made you find separate accommodations after that comment about her in the last post? :)

      Management companies are horrible to be avoided at all costs. If you must use one, hit up the Bigger Pockets forums for recommendations in P-Burg (shout out to Joel Laarsgard!).

      Mindy got her real estate license online through VanEd. I would recommend getting your license if you’re going to be doing some deals. Remember though that you’re required to work for a broker for the first 2 years and that will sap some of your money. The key is to find a broker with reasonable fees. After 2 years in most places, I believe that you can take another test to be a broker and not have to deal with anyone else.

      Still working on that Pliny…

      • The Mad Fientist
        April 21, 2015 at 5:00 pm

        It mainly has to do with my ridiculous savings habits. We fight enough about joint expenses (for example, I tried to convince her that we could survive a year in Boston with only a bean bag in the living room but she sadly won that argument and we got furniture like normal people) so this method allows her to do what she wants with her money without me trying to convince her that index funds are better than eating three meals a day.

        Yeah, I plan on diving into Bigger Pockets a lot more when I know I’ll be moving back to Pittsburgh (who knows if/when that will happen).

        That’s awesome Mindy has her real-estate license. I’ll have to talk to her about that next time I see her (assuming I can get enough coherent words out before you start plying me with delicious beers).

        Mmmmm, Pliny :)

        • April 21, 2015 at 5:43 pm

          “I tried to convince her that we could survive a year in Boston with only a bean bag in the living room”

          I dig it, although I probably would have gone with 2 or 3 bean bags in case you have a guest over.

          I tell Mindy that I could live out of a backpack for months. Give me a laptop, phone, some changes of underwear, bottle opener (always forgotten) and it’s all good. She does not support this either…

          • The Mad Fientist
            April 21, 2015 at 6:40 pm

            Living out of a backpack is definitely the way to go. I was excited to pack up my backpack again when I flew back to the States last month because it brought back all those good, carefree Thailand memories.

          • May 9, 2015 at 9:16 pm

            I did live from third hand furniture for about 4 years. I suppose that having a spouse can help keep a cheap lifestyle from straying too far from “normal”.

    • The Mad Fientist
      April 21, 2015 at 4:47 pm

      My wife and I dated for over 10 years before we got married and during that entire time, we kept separate accounts. Even once we started living together, we kept our individual accounts and then opened up a joint account that we used to pay all our bills. Since we’ve been doing things that way for so long, it didn’t make sense to change for the sake of it after we got married (if it ain’t broke, don’t fix it).

      We both make roughly the same amount so we each contribute equally to the bills but then we can do whatever we want with what’s left over. Jill’s not as hard core as I am about saving so keeping things separate probably prevented a lot of arguments, especially back when I was saving like a madman and couldn’t imagine spending money on anything nonessential.

      • Logan
        April 21, 2015 at 4:57 pm

        Thanks for the response. It makes a lot of sense. Had my wife and I had similar incomes from the start, it may have been a good way for us to go. I’d prefer to save and “retire” earlier, while she prefers to spend. But since I made at least twice as much from the start (now she’s almost caught up to me), it would have pretty unfair. Instead, we get by with spending budgets that can roll over from month to month. So my budget is usually rather large and I’ve actually been investing it lately. Her budget is usually spent every month.

        • The Mad Fientist
          April 21, 2015 at 5:08 pm

          That sounds like a good strategy as well. At the end of the day, you just have to do what works in your relationship.

          It is definitely much easier when you make the same amount though and even easier when you get on the same page with regards to spending (which my wife and I have over the last couple of years).

          • London Rob
            October 26, 2015 at 11:25 am

            Its great to see how others setup their finances in a joint account, and I am glad its not just us who have separate. Like you guys, we have our Joint Account that all the money for the mortgage and bills go into, however I pay a higher whack of the mortgage as I earn more, but otherwise the rest is ours to do what we want. I save heavily (ok, and buy alcohol!), and she spends. It works for us, but I am not sure how she will react when I retire much earlier than her!

  3. April 21, 2015 at 12:21 pm

    I think it is weird giving yourself advice, too. However, putting it on paper and looking at your situation makes it appear different that it would in your head. I guess it distances you from it in a way and that allows you to realize there are some things to tweak.

    You are definitely in the “one more year” danger zone!

    I think this series will be a big hit and look forward to more of them.

    • The Mad Fientist
      April 21, 2015 at 5:12 pm

      I know what I should be doing but actually doing it is another thing altogether! I’m hoping that by putting it all down here, I’ll be prodded into action.

      Glad you think the series is going to be a good one. I know I’m looking forward to seeing what some of you guys and girls are up to :)

  4. April 21, 2015 at 12:29 pm

    Happy to see a new post from you!

    I enjoyed reading your advice to yourself — so much so that it might be interesting to make that a recurring feature of the Under the Microscope series! I can certainly relate to your risk aversion and wanting to build up a big safety margin. One of the ways I’m reassuring myself with my FI plans is to remember that there are more ways to have safety than just building a thicker stack of dollars: from “side hustle” work, to lifestyle flexibility, to the relatively high likelihood that I would go back to work in some form in a few years (maybe part-time or in a brand new field).

    • The Mad Fientist
      April 21, 2015 at 5:42 pm

      I definitely plan on keeping the “Mad Fientist’s Comments” section in future Under the Microscope posts!

      I actually have no fear of running out of money (for many of the reasons you listed) but I’m just having trouble giving up this job because it’s the best job I’ve ever had, I enjoy the type of programming I do, I make good money, and I have a ridiculous amount of freedom and flexibility, since I work remotely. It just seems crazy to give up so that’s what I’m struggling with.

      • Tim
        April 21, 2015 at 5:46 pm

        Completely Agreed!! When you have that freedom and flexibility to do what you want when you want mostly.. that’s what it’s all about right??

        I would give up 50% of my pay to have half of the year off… I make good money love what I do… don’t care much for the 5 days a week… week after week… I’d accept a lot less pay for a lot more time off…

        Don’t think the employer will go for that… so I’m on the saving track till that last year comes…

        • The Mad Fientist
          April 21, 2015 at 6:51 pm

          Exactly!

          I think my next step will be to shift down to 80% so that I can take more time off throughout the year.

          You’ll be amazed what an employer will agree to when their only other option is to have to find a new employee. As I said in the post, F-you money is a ridiculously powerful thing so you can make crazy demands when you have a bunch of money in the bank and aren’t scared to leave your job :)

  5. April 21, 2015 at 12:32 pm

    Ok, I’ve received so much from you, perhaps I might inspire you to try something different.

    Real estate. I’ve never been a saver, but I got tremendously lucky with real estate. I guess I was always somewhat frugal, but I really never made money or saved money. After making money in real estate, then reading ERE, MMM, and the Bogleheads, I’m basically set for life.

    When owning real estate, sounds to me like you want the least hassle. Ask yourself what it would take to accomplish that. I personally like (and I know how) to take care care of property, appliances, heating & ac, so that part is somewhat fun. Start small. With your discipline of keeping records, I think you’ll be surprised at the benefits of RE. I’m sure Pittsburg has a lot of bargains. Most of all, have fun with it, you’re a smart dude.

    • The Mad Fientist
      April 21, 2015 at 7:32 pm

      Good to hear from you again, Mike!

      I think starting small is key. The main reason I don’t want the hassle is because I don’t have the skills to take care of things myself. I’d love to learn all the necessary skills but I think if I took on too much, I’d probably get overwhelmed and stressed and would then outsource it.

      Maybe just buy one small place in a good location and see how it goes and then maybe expand once I gain confidence and I’m sure I enjoy it.

  6. AJ
    April 21, 2015 at 12:34 pm

    In my experience, property managers will shield you as much or as little as you want…but there is a cost. For example, I’ve authorized mine to approve any needed repairs under $300 without contacting me. So for little things (air conditioner repair, leaky faucet, etc.) I only see them when I get a direct deposit of rent for less than I am expecting. If it is over $300, they contact us for approval. I could tell them to just deal with everything under $5k and then I wouldn’t be bothered at all, but I’m not comfortable with that.

    It is annoying to deal with rental issues when they come up, but they are pretty infrequent considering the return we get on the investments. Most of our property is out of state, but we have a PM even for our local rental because it is sooooo worth the cost!

    • The Mad Fientist
      April 21, 2015 at 8:16 pm

      Thanks for the comment, AJ. I like the idea of not being bothered with minor problems. Do the out-of-state properties cause more stress than the in-state ones or are they pretty similar, since you have property managers for all of them?

      • jamescletus
        April 22, 2015 at 5:39 pm

        Great post. Real estate is not passive investing. Its not a full time job either but it will take up some of your time and can be stressful. If you don’t have a desire to take on that job then stick with index funds.
        A mgmt company can help but they also will spend your money more freely than you would and once a tenant is in there I find little value in their service. My mgmt company has discretion to spend $250 without my approval. A handyman might charge a two hour min at $60/hour to tighten a door knob or fix a window screen. Mgmt companies don’t do anything for free. They just coordinate. I do find some value in mgmt companies. For example you might choose to just pay a mgmt company a one time service fee to screen/show the unit when its vacant then self manage after that. And if you buy a long distance property you are pretty much stuck with a mgmt company.
        Most people don’t factor in the true cost of ownership. Everybody calculates mortgage, insurance, prop taxes, and HOA. But very few people also add a cushion for maintenance/repairs, turnover costs, and a potential vacancy times each year. Yes there are tax benefits but there are also the expenses when you sell and have to pay real estate fees, capital gain taxes, and depreciation repayment tax (taxed as income). I would also factor in a mgmt company monthly fee in case you decide you made a mistake self managing in a couple years down the line.
        All this is assuming you get great tenants and the property value rises. That is a whole other potential headache. Please don’t get me wrong, real estate investing can be extremely profitable if you have the temperament for it and the numbers work out. But it is not set it and forget it. Its a small part time job so make sure you make a monthly income from it.
        I can handle the swings of the stock market, I don’t like the call at my grandma’s funeral that the garbage disposal is making a funny noise. yes, that did happen to me:). Plus the stock market offers quick liquid assets if needed and real estate takes months and stacks of papers to sell.

        • Just chiming in
          April 25, 2015 at 11:23 am

          Just wanted to chime and say that while I used to be very into rental real estate and I do love tangible assets, it wasn’t until I went through a couple of buy and sell cycles that I quickly learned the following general rules of thumb (yes I get there are ways around these, but that takes time and effort…which isn’t free).

          – Assume it will cost you a minimum of 2-3% to get into the property (buy).
          – Assume it will cost you 5% to get out of the property (sell).
          – Assume over the long haul RE appreciation paces inflation (if you assume differently, then accept the fact there is some speculation in your decision making process)
          – There is no liquidity (unless you count access to additional debt liquidity..which is a different discussion)
          – Losses are assumed to be passive, and phase out (meaning you have carry forward losses).
          – Income is assumed to be active (ordinary) and taxed at your ordinary income rates.
          – Depreciation recapture happens at your current tax rate when you decide to sell, not at the tax rate you benefited from said depreciation expense.
          – Laws are not in favor of the landlord (i.e. you can’t evict people in the winter, let the utilities cut water/heat, etc)
          – Owning real estate exposes you to interest rate risk (if rates go up, home values will drop and obviously if rates go down, prices go up). Not to say other asset classes aren’t exposed to this risk, just wanted to remind people that physical real estate is not immune to it. If you don’t care about this, then I would encourage you to go buy a non-callable bond and ride it to maturity.

          I am not saying RE is bad, just understand that your long term returns likely won’t outpace a well balanced portfolio and has the potential to bring you more headaches… just expressing my personal experience.

          IMHO, if you are either on an upward trajectory in your career or other income streams and are reasonably versed in the market…you should consider REITs in your tax sheltered accounts to satisfy your real estate bug.

          • The Mad Fientist
            April 27, 2015 at 11:00 pm

            Wow, great stuff! These are the types of facts I need to hear and will come back to when the real estate bug starts biting me again, as I’m sure it will in a few years. Thanks a lot for taking the time to share what you’ve learned!

        • The Mad Fientist
          April 27, 2015 at 10:56 pm

          Thanks for your input, jamescletus. To be honest, I can’t believe I’m even mentioning the possibility of investing in real estate after the stress and misery I had at the end of last year selling my house so all of these comments will be great to come back to if and when I move back to Pittsburgh and start getting any big ideas.

          • Lamont Cranston
            May 25, 2015 at 11:56 am

            Just a note, at one time I had five rental houses, when I moved from Michigan to Florida,
            I sold them all. VTSAX and REITS are so much more relaxing.
            Also if you can’t do repairs yourself, you start with a great financial disadvantage, IMHO.
            Mikek

  7. Nick
    April 21, 2015 at 12:53 pm

    Great post, Mad Fientist! Look forward to the series!

    • The Mad Fientist
      April 21, 2015 at 8:16 pm

      Thanks, Nick!

  8. April 21, 2015 at 12:56 pm

    Good to hear more about you and your background. I also kicked up my savings when I started reading earlyretirementextreme.com. It is a dream of mine to be able to do exactly what I want to do every day!

    • The Mad Fientist
      April 22, 2015 at 10:42 am

      The beauty is, you don’t have to wait until full FI to do what you want to do everyday. Use the money you build up to make positive changes even before you get all the way there!

  9. The Bearded Dragon
    April 21, 2015 at 1:31 pm

    He returns! Great post. I’m really looking forward to this series. As a financial voyeur, I love the idea. As some other people have commented, I enjoyed getting to know some more specifics about your situation. I’ve also thought about using real estate as part of my well-balanced FIRE diet, but don’t have any rentals yet. Please be sure to share the details if you end up getting a rental (or five). Congrats on reaching your number! I will be interested to see when you finally decide to pull the plug.

    • The Mad Fientist
      April 22, 2015 at 10:51 am

      Glad you’re looking forward to the series!

  10. Kevin
    April 21, 2015 at 1:39 pm

    In regards to real estate, in addition to buying & owning rental properties, you may also want to research or consider becoming a hard money lender or purchasing individual real estate notes.

    Both can provide pretty good returns but do not require dealing with landlording or property management. Both are more passive options compared to owning rental properties. The downside is that you do sacrifice some of the ownership benefits (tax benefits/depreciation and any property appreciation).

    • The Mad Fientist
      April 21, 2015 at 8:24 pm

      Thanks, Kevin. Do you have any experience with hard-money lending or real-estate notes?

  11. April 21, 2015 at 2:03 pm

    You’re from Pittsburgh? I knew there was a reason I liked you. (From Bethel Park, myself.)

    Thanks for the peek under the hood. I especially like hearing about other’s AAs, as that’s an area where there seems to be a lot of different approaches in the PF community. We’re currently using Bernstein’s Simpleton’s portfolio, from the intro of the Intelligent Asset Allocator…because I couldn’t finish it. :)

    http://ed-chang.com/review/

    • The Mad Fientist
      April 21, 2015 at 8:31 pm

      Haha, nice! Yeah, I grew up in the South Hills (Scott Twp). I was actually just up there visiting my family but flew out yesterday.

      My asset allocation is a mess so I need to do some work this year to improve it. I tend to just focus on plowing as much money in as I can and don’t focus too much on allocation but I know that’s not wise.

      We’ll have to grab an IC Light or two next time we’re both in the burgh!

      • April 22, 2015 at 1:37 am

        Man, we’re even from the same part of town.

        Must be something in the water that encourages FI.

        Let’s definitely try grab a beer sometime. You’re in Europe now, right? We’re heading to Austria, Slovakia, Hungary, Poland, and the Czech Republic in a couple weeks. Any chance you’ll be in that neck of the woods?

        If not, the burgh it is. :)

        • April 24, 2015 at 5:31 pm

          If you all get to the burgh, let me know – I can host – I’m in Jefferson Hills, close to the Bethel Park side :)

          • The Mad Fientist
            April 27, 2015 at 11:10 pm

            Sounds like a plan!

        • The Mad Fientist
          April 27, 2015 at 11:08 pm

          I’m actually in the States for the next month because I thought I’d be waiting for my UK spouse visa to get approved. Luckily, they issued my visa quickly so I already got it back but I’ll be here until the end of May anyway because I got some other things going on and I already booked my flight.

          I would have loved to have met you in any of those places though because I love them all. Have a great trip and let me know which country you liked the best!

  12. Tim
    April 21, 2015 at 2:28 pm

    Nice post… I’ve been following you a little as you have some great advice on maximizing tax benefits… or shall I say minimizing your tax burden. I’m getting ready to plunge into the blogger world as I have been a heavy follower for about 4 years now and I have hit my cross over point… but in my view my finances are a “mess” I have a bit of money in lots of places and I need a better way to consolidate things and get them on the similar track..

    I’d recommend getting rid of that big cash cushion but I can also relate… I love having a cash cushion… but I also have my radar stock list that I update frequently.. It’s basically the stocks and companies I want to own. Mostly based around DGI but some in that I just use and love their products and know others who do as well. Buy what you know! When something comes into my price point I make it a point to “BUY” I reevaluate this stuff a few times a year.. Buy new positions when prices are low or buy more shares of companies I already own have a bad quarter or the stock shows some weakness… After all those often result in better value buying opportunities..

    I recently became a landlord and in my short experience I would say yes it is a good thing… it opens up a world of business deductions to further lessen your tax bills and I enjoy knowing I am providing good quality housing to individuals who might not otherwise afford a house they are renting due to lack of resources. These are often great people who just happened upon some tough times in life and are getting things reorganized. It’s a Yes Vote for me.. If you are purely in it for the MONEY aspect.. However, you are probably better off going with some REITs and avoiding the hassles…

    I am not the type to bring up “money topics” with friends or relatives… But I don’t mind talking about them at all as I have a good handle on that part of life.. However, it seems when friends or family bring up such topics and we talk about things I think many times they end up discouraged and mad when they found out how well off I am and how I handle building up my F-U money… Because they are struggling with so many “basic issues” I too had those issues and worked thru them and I’m well beyond them….

    My only debt is my mortgage and I’ve decided I plan to work until that is fully paid off while also doing my normal savings and investing. I figure about the time the mortgage is paid off my portfolio will be about $1.4 – $1.6 Million. If I get fed up with work or life or anything along the way… I may cash out a little early and just pay off the mortgage… Then enjoy the rest of whatever I do with my life… Travel, build planes, tinker on cars, (Maybe learn how to trade options)… and donate the profits to charity.

    cheers!!

    • The Mad Fientist
      April 21, 2015 at 8:43 pm

      Yeah, the real estate idea definitely isn’t just about the money but I’m not exactly sure what it is all about. I just sold my house at the end of the last year and I said I’d never buy a home again but buying a property for investment purposes still appeals to me for some reason. Part of it is I like the idea of buying a piece of my hometown that I could always come back to and I like the idea of having something tangible in my portfolio. We’ll see if anything happens but it’s still a long way off if it does.

      Let me know if you end up starting your own site because it sounds like you’d have a lot of interesting things to write about.

  13. Nick
    April 21, 2015 at 2:42 pm

    Mad Fientist, your plan is rock solid so I only have a few questions. Have you considered opening up an Individual 401k instead of a SEP IRA? I’m sure you already have, but if you haven’t this could allow you to make much larger contributions than allowed by a SEP IRA. Also, this may also allow you to continue to make backdoor Roth IRA contributions by rolling the SEP IRA into the 401k. I know portfolio construction is an area where reasonable minds can disagree for good reasons. But want to get your thoughts…Have you considered adding REITs? What about tilting towards small and value stocks? What do you think is an appropriate allocation towards international stocks? Hope you’re doing well and look forward to your future posts!

    • The Mad Fientist
      April 21, 2015 at 9:17 pm

      Hey Nick, I looked into the individual 401(k) but I got put off by the additional complexity and paperwork. Plus, when I opened my SEP IRA, I didn’t have much supplemental income so the difference between the two wasn’t that big. I have more money coming in these days though so do you think it’d be worth looking into the solo 401(k) again?

      I used to have a small percentage of REITs in my portfolio but this JLCollinsNH and the fact that I’m not concerned with yield at the moment made me scrap them.

      Tilting towards small and value stocks though is something I plan to do so I’m going to sit down and figure out the best places to put everything (look out for that post on asset location that you requested last year because it’s hopefully coming soon)!

      As far as international stocks are concerned, I’m not sure what the appropriate allocation is. As I mentioned, asset allocation/location will be a big focus of mine this year so if you have any thoughts, I’d love to hear them!

      • Nick
        April 22, 2015 at 9:51 am

        I haven’t dealt too much with individual 401k’s, but I’d probably lean towards it over the SEP IRA once my supplemental income reached $5k or so. I also would do it to continue my backdoor Roth IRA contributions (if my income was too high) instead of contributing to a taxable account. Given we both plan to slowly convert to the Roth IRA, I think the tax savings would outweigh the headache over time.

        Thank you for your input on the portfolio. I look forward to your post on asset location! As far as international allocation goes, only God knows the right allocation :) I think anywhere between 15%-50% can be reasonably supported (I fall towards the middle of the range). I think small/mid cap international stocks tend to add more diversification and return to the portfolio than large cap international stocks (large US and large international developed tend to have higher correlation) and emerging markets tend to add the most diversification and return (lower correlation with rest of the portfolio). I try to weigh these factors with the additional costs and risks (i.e. currency, political, etc.) of investing abroad. Long story short, no right answer, but I think some meaningful allocation to international/emerging market stocks is a good thing.

        • The Mad Fientist
          April 22, 2015 at 11:04 am

          Cool, I’ve added a note to my to-do list to look into individual 401(k)s so I’ll let you know if I end up making the switch!

          • Eric
            April 22, 2015 at 12:39 pm

            We opened an Individual 401k for my wife through Vanguard last year, and it was very easy to set up. A Vanguard rep walked us through the form on the phone and we mailed it in with a check.

            The big advantage over a SEP is the upper limit is much higher ($53k in 2015) because you can make both employee and employer contributions (once you navigate the various formulas to figure it out). One PITA though is you have to make your contribution in the calendar year, before you’ve done your taxes to know exactly how much you can contribute. We went over by a few hundred, then I missed the April 15 deadline to recharacterize the excess, now I’ve got to call the IRS to figure out what to do. Next year I’ll know better what to do.

          • Dave
            April 25, 2015 at 2:07 am

            I don’t know anything about Individual 401ks, but we have a SEP IRA set up for my wife. The limit on the SEP was $52k for 2014. The 401k may have more advantages, but I don’t think the contribution limit is one of them.

          • The Mad Fientist
            April 27, 2015 at 11:33 pm

            Eric, that’s great to know it wasn’t too much of a pain setting up an Individual 401(k) with Vanguard.

            Dave, while the maximum contribution limits are the same, the way you get to those limits is quite different. This Oblivious Investor post describes the differences brilliantly.

            I actually remember stumbling on that post when I was figuring out what type of account to open and it reminded me why I ended up going with the SEP. Since I have a workplace plan that I already max out every year, I wouldn’t be able to utilize the employee contributions of the SIMPLE or Individual 401(k) anyway so going with the SEP allowed me to contribute more than a SIMPLE and the same as an Individual 401(k) but with less paperwork.

            Once I leave my full-time job though, it definitely looks like the Solo 401(k) will be the way to go.

          • Lamont Cranston
            May 25, 2015 at 1:18 pm

            I just learned that ‘Individual SEP’ withdrawals are subject to Social Security taxes.
            If I had known that, I may have did something different.
            I’m have about 40% in tax defered accounts, I don’t know what a proper percentage is.
            If I had learned 10 years ago that I could contribute both to a SEP and a ROTH I would have
            a higher percentage.
            I need to change accountants and/or educate myself on tax efficiency, preparing for retirement and during retirement.

  14. brooklynguy
    April 21, 2015 at 3:00 pm

    Glad to see you resurface with another post, MF! I look forward to reading more of this series too. Nice way to kill two birds with one stone by kicking it off with yourself under the microscope!

    • The Mad Fientist
      April 21, 2015 at 9:18 pm

      Thanks, Eric! Hope you’ve been doing well!

  15. April 21, 2015 at 3:44 pm

    MF, just started reading after MMM linked to your work. You are so clear and articulate. Looking forward to FIRE lifestyle as my wife and I start (why is call) “extreme savings”

    • The Mad Fientist
      April 21, 2015 at 9:22 pm

      Casey, thanks for the kind words and welcome!

  16. BackNColo
    April 21, 2015 at 5:10 pm

    As far as rental properties and property management companies. Remember that they have their own best interest in mind. They get paid by changing renters, they get paid to advertise, they get paid to do repairs (whomever did the damage), they get paid for maintenance (which you don’t have access to see if they actually did it), and they will try to get more.

    I had 2 horrible experiences with 2 completely different companies on 2 homes. Both will not fix damages properly. When repair something, they will try inflate costs on repairs. Since you can’t usually inspect the damages and repairs, you have to trust that hey did a good job. They use their employees to do the repairs not licensed contractors…. I could go on for hours (literally) and have.

    I thought they would help with the sleepless nights, not cause them. If you have to use a property manager, video/photo the house (inside, out, and crawlspaces/attics).

    I very much enjoy your blog.

    Good luck!

    • Jaci
      April 21, 2015 at 9:05 pm

      BackNColo, I’m sorry to hear about your property manager experience. After 3 awful tenants, I decided the money was not worth it. It was either sell the property or try a property manager as a last ditch effort before I threw in the towel. So far (crossing my fingers and knocking on wood), I’ve been very happy with my property management company. I think a lot of your frustrations have to deal with the way certain property management companies structure their contracts. My property management company does not have a full time handyman and only outsources to contractors with no mark-up. Also, their management fee is the greater of 7.5% of gross rent or $100 per property. Besides the management fee, there are no other ways they make money off of me as there are now leasing fees, advertising fees, administrative fees, showing fees, etc. Everything else is directly charged to me, and I get all receipts. The contract encourages them to keep the units rented and at higher rates! My property manger actually got $75 more in rent per month than I asked him to on my rental. Anyway, I can understand your frustrations. I was (still am) super skeptical of the whole property management business, and I am sure there will be disappointments for me along the way. However, like most service industries, I think you can find a few good ones if you can sort through the riff raff to find them.

      • The Mad Fientist
        April 21, 2015 at 9:32 pm

        Thank you BackNColo and Jaci for your comments. Stories of crooked property management companies and terrible renters make me more likely to just stick with index funds, where I think I probably belong!

        After all of your horrors, would you still recommend buying investment properties?

      • Jaci
        April 21, 2015 at 9:58 pm

        For me, it depends on the day. When it is working, the cash flow is awesome. When it is not working, it is miserable. There are a lot of variables in play. If this property manager does not work, I will probably end up selling. To me, this was purely a financial investment. However, like you said, there are other ways to make money and have cash flow.

        As a side note to this, do you invest in Lending Club or Prosper? I haven’t seen it on your website unless I missed it. Your views and analytical skills would make P2P an awesome topic (just a suggestion).

        • The Mad Fientist
          April 21, 2015 at 10:16 pm

          Hi Jaci, I haven’t written about P2P lending but if I did, I imagine it’d be very similar to this excellent post by Miles Dividend MD. Check it out and let me know what you think!

          • BackNColo
            April 22, 2015 at 3:05 pm

            Jaci, I am glad you found a good property manager. I didn’t say it before, but our best tenant was a heroin dealer. We didn’t know them, but they paid their bills and paid to not have an eviction. My SO and I kept worrying that the next “nice family” that the property manager put in would be meth manufacturers or users. The cleanup and losses that would have come from that and the lack (or at least pretty sure no) insurance coverage would have been more than my mind could handle.

            Good luck and keep working to FIRE :)

  17. Mark AW
    April 21, 2015 at 5:12 pm

    I second Bigger Pockets for learning about real estate investing, for free. There are a lot of ways to make money in REI, so learn a bit about each and decide what suits your personality. From what I have learned, the 2 most important things when managing your own rentals is buying a property correctly, which you would be good at because it is very math focused. The second is placing a good tenant in your property, and there are many rules to follow to help you reduce your risk in that area. As far as property management companies, go that route if you don’t like doing it yourself or want to reduce your time involved. If you do, research and interview as many companies as there are in that area and determine if one fits your requirements (BP also has good suggestions for interviewing PM companies). Best of luck.

    • The Mad Fientist
      April 21, 2015 at 9:40 pm

      Thanks for the advice, Mark. When I was getting my free ivy league degree, I took a real estate investing course at the business school and I loved the math aspect of it all. It’s the people aspect that worries me!

  18. Mr. FSF
    April 21, 2015 at 6:54 pm

    Hello MF,
    Looking forward to the “under the microscope” post series, may even submit ourselves to get some or your and readers feedback, it’s always good to get multiple views on the matter of FIRE.

    As for real estate and property management, we have some better experience than “BackNColo”. Our real estate is located in the Netherlands but we are still living in North America, so before buying we looked into the cost and benefits/drawbacks of property management.

    It took some time to find a reputable company that would cater to our wishes. They have been good so far, and have given us the option to use our own contractor for major repairs, where they will just do minor ones with their own maintenance crew. Their maintenance crew rates are acceptable, but still higher than our own contractor (we used him to gut the duplex we bought and rebuilt from scratch, looks great at the moment but there are still a few items for the long term maintenance plan). We have an all-inclusive package with them, so we only see the deposits coming into the bank (and the occasional email with a status update).

    As noted above, you’re a smart guy, so do your homework and you’re likely to have more peace of mind. However, in our experience real estate is always on your mind to some degree, as there is always something to do (e.g. maintenance), either now or in the future.

    • The Mad Fientist
      April 21, 2015 at 9:54 pm

      Yeah, I’m really enjoying not having any worries right now so the idea of buying a property that would always be on my mind just doesn’t seem worth it. Maybe after the trauma from our last house has escaped my memory I’ll change my mind but the lack of stress is worth more than any amount of investment returns, I think.

      Look forward to reading your Under the Microscope submission!

  19. Fientific American
    April 21, 2015 at 10:15 pm

    Hi MF,
    Long-time reader, first-time poster. I just recently saved enough to cover the bare necessities a few months ago and was able to quit a job at Zeiss a few weeks ago to start an adventure working part time with a friend. The picture of the Smart Zoom made me wonder if I’d logged back into the wrong website, but the timing of the picture couldn’t be more perfect. I felt the need to share and also to say “thank you” for the encouragement in your posts for the past few years.

    If you want to buy and hold real estate, I find the best thing to do is just start looking at properties for sale and filling out spreadsheets for projected cash flow. One in 100 will actually be worth the investment, but at least you’ll start the process. Knowing when you see a good deal is key, as they usually don’t last long on the market. I’ve not had good luck with property managers (plus giving up the first month’s rent + additional % hurts my frugal muscle too much), but have had success in partnering and sharing responsibilities with like minded friends. Just make sure you have a contract and manage mutual expectations.

    Keep up the good work and I’m returning to the shadows to lurk and be inspired!

    • The Mad Fientist
      April 21, 2015 at 10:38 pm

      Haha, I hope the feature image didn’t bring back too many bad memories! Congratulations on saving up enough money to be able to quit your job and do something fun with your friend! That’s really what financial independence is all about (forget retirement, use the freedom to do something cool and exciting instead).

      I think finding deals would be the part I would enjoy most but I just need to make sure I’m mentally prepared for the part after the deal has been made. That, I’m not so sure about.

      Thanks for coming out of the shadows to comment (great name by the way, haha) and congratulations again on your exciting new adventure!

  20. Daniel Born
    April 22, 2015 at 12:25 am

    For real estate, there’s really no reason to become an agent. Most of the agents have no idea what they’re doing. You’re better off educating yourself by hanging out with investors. Also, just as an aside, finding a good agent is a complete pain in the ass. Look for one who works with investors and who has in-depth market knowledge, does off-market prospecting (finds properties that aren’t listed), has some negotiating skill, and who returns your calls even though you’re a small fish. This person will be hard to find. You may have to settle for someone who returns your calls.

    Join a local investing group. Pick up Gary Eldred’s book called “Make Money with Small Income Properties.” The book is dry as hell and it’s no get-rich scheme (if anyone starts sounding like that, run the other direction quickly), but in one book, you will learn most of what you need to know to get started.

    After that, learn how to value assets based on discounted cash flow analysis (if you haven’t already) and then create a spreadsheet that will help you quickly assess properties. Most importantly, look in areas you know and understand and get VERY familiar with the market. Do not pick a market where you can’t get good tenants, especially for a first purchase.

    You also should know what the GRM and CAP rates are in each submarket where you’re looking and be able to tell if a building is interesting to you as an investor in under a minute usually.

    Buying real estate properly can and will eventually result in tax-advantaged ROIC that is so far in excess of what you could do in the stock market that it’s not even funny. You will wonder why you didn’t start earlier. I personally started with $15,000 in 2002 and am now selling the first property I acquired for just over a million dollar gain. I should add that I put none of my own money into the property except the original $15,000 investment and I made about $40,000 / year off that property, not including principal pay down of $9,000. So over 13 years of owning that place, it paid me $500k to own it.

    I’ve sold two other properties over the years for about $200k in gains while enjoying 10%+ cash on cash returns while owning the properties (once again, tax advantaged).

    That said. It’s a way bigger pain in the ass than people make it out to be and anyone who acts like it’s “passive” income is lying. It’s a pain, especially if you’re planning on not being around a lot. One of the reasons I’m selling my first place is that I’m tired of dealing with it.

    The returns are there though. You will generally be making at least a 10% tax-advantaged cash on cash return safely on your money if you buy correctly.

    If you’re going to start doing it though, the best thing you can do is get a 2 to 4 family building and then occupy one of the units b/c you’ll get owner-occ financing and be able to take the personal tax exclusion on that % when you sell. You can air bnb your apt when you’re out of town so it won’t cost you anything to occupy.

    Anyway, a small real estate investment goes a long way. But it will take time out of your life even with a management company. The market is also pretty tight most places right now so you’ll probably have to really dig in to find yourself a solid deal but you never know. I’d think there’d be something up in philly or pittsburgh that’d be worth doing.

    Good luck man. Love the blog!

    Dan

    • The Mad Fientist
      April 22, 2015 at 11:16 am

      Dan, thanks for all the great info! I’ve added the book you recommended to my reading list so I’ll check it out soon.

      Your idea of getting a 2-4 family building and then occupying part of it sounds like a perfect plan for what I’m hoping to accomplish.

      I will probably be living in the UK for the next 3-5 years so I’m hoping we get back to the States just in time for another crash (mortgage loans are loosening up so I’m sure it won’t be long before people start going crazy again and buying houses they can’t afford).

      Those are some crazy returns you got there! Where are/were your properties located?

      Thanks again!

      • Daniel Born
        April 23, 2015 at 3:46 pm

        My first one was in New York (Harlem) and then second was in Ohio and then third is New Orleans. I did some small development deals in Florida as well.

        Someone mentioned they didn’t like multifamilies b/c if an employer left you have more exposure. I would in general not advise buying anywhere where the loss of an employer is going to kill your returns. I wouldn’t invest anywhere without extremely positive demographic trends in general, and in those markets, you want as much exposure to rentable sq. footage at the lowest cost per sq ft to you, hence my interest in multifams almost exclusively.

        I’ve been able to self-manage mine remotely by doing everything electronically and just having a handyman on call who has all my keys. I visit twice / year to inspect and make repairs but other than that, it’s easy to manage 4 units b/c there’s only one set of systems for all three units. You got one boiler, one water heater, one roof, etc…

        With single fams, first problem from a cash flow perspective is that you’re competing with single family buyers who are not rational people and will buy above cash flow based on what the last idiot paid for a place. So when a bunch of idiots start buying houses, you get a bubble. With my places, even during the recession, the cash flow never budged.

        I did pick up one single family building out of foreclosure b/c it was such a good deal but I spent as much time dealing with that one house as I spent on a place making 5 times the cash flow that was 4 units.

        If you’re going to be overseas though, many not be the best time to buy something. I’d want to buy a place and get familiar with it and get a good team in place that I can trust before bouncing. I spent 8 years in my NYC place before I left.

        Anyway, that’s my dollars worth of wisdom on the subject. I should say that on the single family I bought. I bought it for $60k all cash and sold it for $110k two years later. HOWEVER, after I looked back at my market returns, if I would’ve left the money I used to buy the place in the market, I would have achieved very close to the same return without any of the hassle. That’s ignoring the $24,000 in rent I received but it was A LOT closer than I thought it would be. I did buy that place all cash though so I didn’t have the advantage of leverage and the market was on an absolute tear those years. And I got a little lucky bc I bought calls on some equities that just went bananas. So it’s a little bit of a false comparison but still surprising to me that it was even close.

        Best,
        Dan

        • jamescletus
          April 23, 2015 at 6:24 pm

          After the financials, the most important thing to be aware of is real estate investing is work. If you get a good property, good tenants, optionally good mgmt, then the work is minimal but its still a part time job and an obligation. With an index fund you can take years off of paying attention to it. With rentals you can’t do that. Tenants will move out or things will need repair. In fact, some issues (i.e. water leak) will have you drop everything you are doing and put you to work. Don’t get me wrong it’s far from a full time job and it can generate a good income but it is a job.

          One last piece of advice is consider your end game with real estate investing. If you want to make it a source of income in retirement thats great because you will likely never sell it. But if you figure you may sell it in 5-10 years, then you should really calculate how much it will have to sell for you to break even. Remember you have to factor in real estate fees, cost of vacancy while its on the market, and taxes on your gains (capital gains and depreciation payback). In most case you will find that it has to increase in value a lot more than you think just to break even so don’t even consider it unless you are sure you want it long term. Again, its a job but if you do it right, you can get paid for your time.

          • The Mad Fientist
            April 27, 2015 at 11:43 pm

            I’m in no hurry to look for a new job anytime soon so I think index funds are the way to go!

        • The Mad Fientist
          April 27, 2015 at 11:42 pm

          Yeah, I like the fact that the value of multi-family property is just a function of the cashflow, rather than a random number some excited first-time buyer is willing to pay.

          I wouldn’t buy a property in the States while living overseas so this would only be on the cards once we move back in the next 5 years or so. I imagine by then I’ll have enjoyed the good life for so long that I couldn’t imagine dealing with the stress of maintaining a property, having renters, etc.

          Thanks a lot for the input and I look forward to hearing more about your options successes another time :)

  21. ContangoMojo
    April 22, 2015 at 1:01 am

    Holding rentals is part of my FIRE plan. It’s a great way to diversify your holdings and get passive income.

    I also invest heavily in stocks and some derivatives.

    I like the idea of having cash flow that will grow with inflation in case we get a bout of hyper-inflation or a black swan that messes up the stocks and bonds plan. Property owners do well to survive financial turmoil in other countries.

    If you can find deals at a discount from retail, and refi in a few years, you can get all of your investment back. That’s an Infinite return on investment. Renter pays all the bills and pays the debt off over .

    Make sure you have some cash flow after you planned for major capex, property management, mortgage, vacancies, maintenance, and rising city taxes.

    • The Mad Fientist
      April 22, 2015 at 11:18 am

      Yeah, it’d be nice to at least have a place to live if a particularly bad black swan wipes out everything!

  22. April 22, 2015 at 5:12 pm

    Way late on this, so my 2 cents may be only worth 1.5 cents!

    In my opinion, not only do you want to diversify your investment classes (stocks, bonds, real estate, etc.), but you want to diversify within an investment class. That’s why we buy mutual funds/ETFs rather than individual holdings – it’s cheaper to spread risk out.

    With a MFH, you concentrate risk. If the big employer relocates, you’re going to jump from, say, 5% vacancy, to 30% vacancy. Obviously, if you can fund several MFHs in different locales, you solve that problem. In general, since you’re sharing a framework in the actual building, you can generally get doors for cheaper than you can buying SFHs, but you’re concentrating your risk, both from a geographic diversification perspective and from a capital perspective (unless you’re in a large private investor group or have a vast amount of personal capital, for example).

    Therefore, we buy SFHs. We do have one duplex, and we bought it at a screaming deal. Again, priced low enough, I’ll buy MFHs in the future. Otherwise, I’ll pay a little more to lower my risk premium.

    As for property managers, with the right one, you can pretty much fire and forget. The only time my property manager contacts me is when she has a deal for me, has a potential huge expense (and she pretty much knows that she has the mandate to make a place livable, so she just takes it out of rents or sends me a bill), or when a tenant dies. Otherwise, she deposits checks in my bank, and we occasionally meet her family to go out. If I wanted to be more involved, I could, but isn’t that the point of passive income? You’re paying a property manager to buy yourself time, which is the most valuable asset you’ll ever have.

    • The Mad Fientist
      April 27, 2015 at 11:47 pm

      Jason, great to hear from you again! I hope I’ll be seeing you down in Charlotte in September? If so, I definitely want to hear more about your real estate experiences, since it sounds like you’ve got a pretty good system set up.

      Hope you’ve been doing well!

  23. marvin mcdude
    April 23, 2015 at 9:37 am

    Excited for the new series. How does one apply to have their finances reviewed? Is there a process for that?

    Keep up the great work!

    • The Mad Fientist
      April 27, 2015 at 11:48 pm

      Just email me your answers to the above questions and I’ll add you to the growing list of responses!

  24. April 23, 2015 at 7:30 pm

    I have always been a saver and have been investing in the stock market since the late 1980’s, but things have really changed since I started writing and blogging about investments and followed the likes of you (The Mad One himself), Jacob, and the Moustache and realized that I can reach financial Independence faster than I ever thought. I hope that you continue to write great articles and continue to share those tax secrets….lol. Maybe one day I will share my story in greater detail about reaching financial independence.

    Thanks as always,

    Joe

    • The Mad Fientist
      April 27, 2015 at 11:53 pm

      Thanks, Joe! Let me know if you want to go under the microscope when you eventually decide to share your story :)

      • April 29, 2015 at 11:41 am

        Will do, right now I am about 5 years out from this happening….but as long as you are OK with me being technically financilally independent, but still working. Thanks as always.

        Joe

        • The Mad Fientist
          May 2, 2015 at 10:44 am

          You don’t even have to be financially independent to go under the microscope…people currently pursuing FI are more than welcome as well!

  25. April 24, 2015 at 5:38 pm

    I’m not sure I’d buy a rental property in Pittsburgh unless you were buying by the universities (Oakland, Squirrel Hill, Shadyside, etc). But then, you’re dealing with mostly student renters, which aren’t the best option IMO! We had horrible experiences with renting a townhouse in the DC area – which has a very hot rental/buying market. We used a property management company, but they didn’t really take care of the property as we’d expected – we still got called for fixing things (repeatedly!) They sent us a bill for fixing a toilet, then 2 months later, we got another bill for fixing the same toilet – to us, that said something’s wrong – either it wasn’t fixed properly in the first place, or the renters were causing the issue. The PM company just hired the contractor again. I was glad to dump that property, and the only real estate investing I plan on doing is via REITs!

    • The Mad Fientist
      April 27, 2015 at 11:58 pm

      For some reason I’m drawn to the Mexican War Streets and Deutschtown but I’ve done absolutely no research so as I mentioned in the post, I’d want to live there for a few years getting to know the market better before doing anything.

      The thought of all those hassles make REITs look like the most appealing option though!

  26. flying low and slow
    April 25, 2015 at 1:55 am

    I hope, fientist, that you will put some of us sad flies who are just watching all this FI action from the gallery, under the microscope as well. It’s inspiring to see all who have hit the finishline, but i would love to hear from those who are doing the grind or sometimes the double grind and occasionally
    mess up but are trying to get there.

    • The Mad Fientist
      April 28, 2015 at 12:02 am

      Absolutely! Just answer all of the questions and email me your answers if you’d like to tell your story because I’m sure everyone would love to hear it!

  27. April 25, 2015 at 11:29 pm

    I like your comments about f-u money, Mad. I have experienced the same phenomenon in my work. My frugal lifestyle and growing investments make me feel more secure and independent from wage labor, so I’m naturally more bold at work and go after the projects I want while saying no to those I don’t. Like you say, the joys of FI start long before you retire early. In fact, things have become so good that I am now planning to work for quite a while after fi. It’s funny how that can happen when you don’t feel trapped!

    • The Mad Fientist
      April 28, 2015 at 12:14 am

      I just heard from a friend who stumbled on the idea of early financial independence only a couple of weeks ago and she emailed me to say she realized she didn’t hate her job as much because she didn’t feel trapped there for the rest of her life. She’s only been on the FI path for two weeks and her quality of life has already drastically improved!

  28. April 29, 2015 at 8:07 am

    My husband and I retired from Colorado to an island in the Caribbean before we were 34. We could have done it a little earlier, but we wanted to save up a bit more because we knew we would be interested improving our property. Real estate was the key for us. We gave up on the casino that is the stock market long ago. If you want to live a self-directed life, you must self-direct your investments as well.

    This doesn’t mean you have to be involved in every little thing that happens (thanks to property managers), but it means that you can make your own decisions about the investment (not some corporate board/stock holders). And for early retirement, income is much more important than growth of the asset itself (you gotta have a little pocket money to live). You can check out what we’ve been up to at: http://www.lifetransplanet.com. We occasionally will write about our early retirement, but it is mostly about our daily life on la isla. Once you have the taste of freedom you will wonder why you waited so long to gobble it up.

    • The Mad Fientist
      May 2, 2015 at 10:34 am

      Great stuff, Cassie! I’d love to hear more of your early retirement story so let me know if you’d be willing to go under the microscope :)

  29. April 30, 2015 at 9:58 am

    Like you, banking sufficient “F-You money” has been my goal pretty much forever. I’m wondering to what degree your plan relies on a certain level of future stock market returns. Is your Plan B, should those returns not materialize, to continue, or return to, paid employment?

    • The Mad Fientist
      May 2, 2015 at 10:41 am

      I imagine I’ll always have some sort of supplemental income coming in so combine that with the ability to be flexible and lower our spending in particularly bad years, if necessary, I’m not too worried about running out of money.

  30. Aaron Ashmann (halotek)
    May 2, 2015 at 1:08 am

    Any of you guys watch the new movie The Gambler? John Goodman’s gangster character in the movie sums up F-U money as good as anyone.

    • The Mad Fientist
      May 2, 2015 at 10:42 am

      I haven’t but I want to see it! I did see the clip you’re talking about though and it was an excellent description!

  31. Grant J
    May 6, 2015 at 3:13 pm

    I was wondering how to be a part of the Under the Microscope series. Is there an application or something to fill out or will you just be emailing people who contact you expressing their interest?

    • The Mad Fientist
      May 6, 2015 at 9:27 pm

      Grant, just answer all the questions in the post above (feel free to add or omit any) and email them to me. Thanks!

  32. Telecommuter
    May 8, 2015 at 2:20 am

    Can anyone advise on getting into REIT? I’m really interested in rental property… but I don’t think I have the personality for it. As a software guy, I prefer to not have to deal with people issues.
    What type of REIT can get closest to owning a rental without me having to deal with problems… beside it underperforming :) ?

  33. July 29, 2015 at 8:46 pm

    As far as real estate goes, I tend to say stick with index funds. I have a rental property, and am using the profits to pay down the mortgage, with hopes of generating enough equity to sell the rental and buy our personal residence “cash” and rely solely on portfolio for income replacement. My 2 cents!

    • laura
      December 24, 2015 at 5:55 pm

      My husband and I did this. We moved out of our old residence and into the new, which was a little more than twice as expensive. Rented the old. Used 100% of the rental income to pay down the new place. once we paid down the equity to the point where selling the old place would pay off the new, we sold! took 25 months. :)

  34. September 15, 2015 at 2:21 am

    Hello again. Yes, I decided this holiday morning to read a few of your articles.

    It really is amazing how similar some of our thought processes are, even though I’m in a different personal situation and feel differently about certain issues such as real estate.

    I’m thinking that FI is a sliding scale, as opposed to a particular monetary goal or date. Meaning, my saving/investing rate is about 70% right now, so I could accept a much lower-paying full-time job and doing so would not affect my current lifestyle at all. (It would delay full FI, of course.) This doesn’t make me completely FI, but I feel it makes me at least partially FI. I feel this way after I increased my saving/investment rate from about 30% to about 70% less than two years ago. In early 2014, I started saving and investing about half of my take-home pay in a taxable account. Also, the money in my tax-deferred accounts has been earned in less than five years.

    Those taxable-account liquid assets could be considered FU money. However, because I’m planning for those assets to potentially provide post-full FI passive income, if I used it as FU money, then I would no longer have it for post-FI.

    Finally, I also have a different point of view regarding future active income and expenses. I currently figure that my active income provides and will continue to provide me with what you call “essential expenses”. Meaning, at some point I imagine I’ll exercise partial FI and leave a full-job time but continue working on a part-time or project basis, in my current field but not necessarily so. I would like that part-time or project-based work to provide enough income for my essential expenses, and maybe even all of my expenses, for at least a few years, while the taxable and tax-deferred accounts and passive income streams can continue to grow.

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