March 2017 Passive Income Update

Welcome to my monthly passive income update! For those new to the blog – I own 3 properties, an apartment, a townhome, and an apartment building with five 3-bedroom units.  The apartment is now owned completely in cash, while the townhome and 5-plex have mortgages which I’m trying to knock down as quickly as possible!  Now let’s get to the good stuff!

Net Income for March 2017: $2,140

Including Principal: $4,265

The specifics: 

Apartment: $1,200

Townhome: $1,995

5-Plex: $5,860

Total Revenue: $9,055

Expenses by Property:

Apartment: $510

$22 maintenance, $434 association fees, $54 management fees

Townhome: $481

$67 maintenance, $335 association fees, $79 management fees

5-Plex: $1,341

$0 maintenance, $310 electric, $636 water (crazy!), $395 management

Mortgages (including tax):

Townhome: $1,750

5-Plex: $2,833

Total Expenses: $6,915

I’m about halfway towards my goal of having enough passive income to cover my expenses, and at this point there’s very little work to do on my portfolio.  I pay a pretty hefty management fee every month, but given I live 6,000 miles away from any of my properties it’s well worth the money.  At some point if I were to move back to the US, I would consider managing the townhome and apartment myself given how low-maintenance they are, but for the time-being I’m happy with the current set up.

My 5-Plex mortgage is a commercial mortgage given conventional mortgages are only provided up to 4 units, which means that I had to get a 20yr mortgage with a 5 year balloon at 4.25%.  Typically most commercial property buyers would sell the property before the balloon is up, and hope to realize a return, but given I’m looking to hold this for the next 10 years or so, I’m alright paying it down aggressively so that the balloon is fairly manageable in 4.5 years.

The mortgage on my townhome is a 15 year mortgage at 2.75% which I refinanced just before Trump was elected, so I’m pretty comfortable keeping that as is for the foreseeable future.  As astute viewers will note, I am at a slight CF negative on the property including the mortgage, but including the principal paydown I’m still making $689 a month (slightly more on months without any repairs).

Now that I’ve refinanced the townhome mortgage and have the 5-plex, I look forward to my mortgages coming due every month.  It’s great seeing the loan tick down, knowing that I’m that much closer to financial independence.  I won’t get there tomorrow, but I sleep easy at night knowing that I’ve put everything in place so that I will get there someday (soon).  Here’s to another good month!

The Maserati Gran Turismo

I always loved cars as a kid. So much so that at the bright age of 17 I enrolled in school as a mechanical engineer, before quickly figuring out that there were a number of things you had to learn to get an engineering degree that I had zero interest in.  Statics, linear algebra, engineering chemistry…are just a few of the things I decided I had no interest in pursuing.  While I originally thought that I wanted to design and be involved in the car manufacturing process, really all I wanted to do was drive cars.  This coincided with my first summer trading stocks for my personal account, where (through dumb luck) I was able to make 20% in the span of about a month.  Ultimately this helped me decide to switch to a degree in economics, and shifted my focus to getting a job in the world of finance.

I was lucky enough to get internships both my sophomore and junior years, which were widely believed to be necessary in order to secure a full time job at graduation.  I received offers from two investment banks, and ended up taking a position as a foreign exchange trader.  When they sent over the contract and I saw that my salary alone was nearly $90k a year, I quickly started dreaming about all the things I’d be able to buy once my student loans were paid off.

My dream car was the Maserati GranTurismo.  First off – well look at the thing.  I’d never seen a car that sexy before and it was about as close to love at first sight as I’d ever get (that’s including a brief crush on Jessica Alba back in the 11th grade after watching Into the Blue.)  If looks weren’t enough, you could hear the car roar from nearly a mile away, with a Ferrari-built engine that made sure to let everyone know you were coming.  After looking at that contract I decided that this was the car for me by the time I turned 25.

Now unfortunately I never bought the Maserati.  I didn’t even buy a car until I turned 27 and ended up with a much more economical 4 door BMW.  Where did I go wrong? Well I grew up a little bit, and realized that I should really put all those savings of mine to work.  So – I bought an apartment, rented it out, and have earned roughly 7% in cash flow since buying the property in 2012.

I haven’t fully given up on my dream of owning the GranTurismo or an equally beautiful car someday.  But for now I have a new dream.  Financial independence.  Not working for the man.  Deciding my own hours.  While I’m certainly not there yet, I’m happy to put in more time working hard and building my passive income stream to the point where I no longer have to work anymore.  At that point it’s up to me to work an extra year to buy a Maserati or a Porsche or whatever I want at that point in time!

The importance of mentorship

I’ve been very lucky over the years to have a number of people I could call my mentor.  Both formally and informally through work and school, I’ve found people who I could rely on to guide me in the right direction.  I honestly believe that without this team of people, I wouldn’t be where I’m at today.

I haven’t always recognized the value of mentorship in my life.  Growing up in an international environment, I was surrounded by successful expats who were leaders in their industry (my friends’ parents), and yet, initially failed to make the connection that these people could help me out.  I wanted to do things on my own, and often felt that asking for help was seen as a sign of weakness.

As I was applying to different schools trying to figure out where I wanted to go, my mom proposed that I sit down with one of the more business-minded people in our church, a consultant at Deloitte who we affectionately call Big Joe to this day.  Big Joe gave me the no BS talk of what it actually meant to be in consulting, and helped me to see that I could do well with a degree in engineering.  With his advice, I applied to Cornell as an engineer, got in early decision, and had pretty smooth sailing for my last semester of high school.  Halfway through my time at Cornell, I did end up switching over to economics (a decision which I do regret to some extent), but ultimately his advice still set me on the right path.

When I was in the process of applying for full-time work as a senior, I ended up getting offers from two of the larger investment banks.  I was in Mexico at the time the offers came through, and was told that I had to make a decision within a few days.  Not knowing who else to speak to, I called up the head of equities at the bank I had interned with during the previous summer.  He guided me into taking the job which was slightly riskier, but ultimately offered me more upside, and looking back it proved to be the better decision for me in the end.

At every stage of my career, there have been people I can point to as being influential in the decisions that I’ve made. With that in mind, I’ve followed this basic blueprint of finding other mentors.

Find someone who is currently where you’d like to be in 5,10, 20 years time

My dad told me once that it helps to know people who are decades older than you, because they’ve likely gone through all of the same things you’re going through now.  If you’re looking to start-up a company, seek out people in your community who have successfully started companies.  If you’re trying to transition into another industry, look for people who are in that industry and willing to give you some guidance.  As great as the internet is as a source of information, nothing beats the wisdom gained from years of experience.

Let it happen naturally

I’d like to think that good mentors fall into place much in the same way that you meet a significant other.  Sure it can be structured by the company or by the school that you’re in, but for the relationship to stick it needs to “feel right.”  Just as in dating, you can’t force the relationship, and often the best thing to do is simply to sit down for a cup of coffee and get to know each other.  Over time, you’ll get a sense of whether there’s a mutual interest, and eventually they may start coming to you directly to see how things are going.

Be realistic

As great as it would be to have Warren Buffett or Mark Zuckerberg as a mentor, realistically we have to work with what we’ve got.  When you start putting yourself out there you’ll realize that your network is much stronger than you think, and you’ll quickly find people who are willing to help you out.  Studies have shown that people not only like to give advice, but they view people who seek advice in a better light.

Develop your team

There’s no reason why you have to stop at just one mentor.  Over the years I’ve developed what I like to think of as my “team” – people I can go to for specific issues, guidance, and perspective.  I have someone I can speak to on my real estate business, and when I’m in a slump at work, I have a number of people who I know can help me to see the bigger picture.  This extends well beyond my business pursuits, and even for personal issues I have people I can trust to give me clarity.

Finding a good mentor isn’t something that happens overnight.  It’s often said that good things take time, but once you have your team in place, the journey gets that much easier.  Take their advice to heart, work hard, and you’ll be guiding someone else before you know it.