All Aboard!

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All Aboard!

Well, I guess it seems my bags are packed, I’ve got my map together, my trusty compass. I have my destination in sight and have pretty well chosen my means of travel. I even have a pretty accurate arrival time!

What next before departure? I guess it would help to know where I am now, right?

As far as I can tell, i’m ready to make the step over to Money Making 201 (please let me know what you think, if i’m not ready!).  After finishing all of college and training, i’ve been grinding it out in Making Money 101 for a couple of years now and just finish making the last payment to what most would call “bad debt” or “consumer debt”. Scroll down and see my networthiq profile from almost a year ago  as compared to my neworthiq profile this month to see progress over just the 2008 year:

I still have my student loan, which is the only “unsecured” debt that I have and although it is still a whopper at 140k, it is locked-in at a nice low 2.85% interest. Enough for my minimum payments and inflation to eat it up just nicely over time. I went back and forth for quite a while about paying it off early or not and even sent sizeable extra payments to it here and there(started with way more than 140k) and with everything i’ve learned here as a 7MIT, decided that sending extra investable money to a fixed, 2.85% interest loan wasn’t the best mathematical approach toward getting richer, quicker!

So here I am now, no car payments, no credit card payments, no personal loan payments and with a savings money market account started that i’m about to make grow as fast as possible each month. This money will then be applied towards one investment at a time.  I will research my next buying opportunity as this fund grows to meet the required downpayment/additional business purchase/stock purchase in a really good but undervalued company, and then I will repeat this cycle over and over until I am ready to land at my destination of 4 million dollars in liquifyable assets in 10 years. Actually this savings will be earmarked FIRST for a downpayment to buy the commercial building that my practice is located in. This will be my first commercial property, added to what was my first residential rental property that I established this year.

My family’s monthly living expense budget totals between 6k-6.5k per month(depending on fuel and grocery fluctuations. This monthly amount includes a mortgage of 2400.00/month fixed at 6.25%(well below the 25% rule of takehome income), all utilities, taxes, great  insurance policies all around, basic pet and horse upkeep costs of a couple of hundred dollars per month[to keep the wife happy ;)] a modest monthly cash allowance for dining/entertainment = which I call the “anti-impulse buying and spending fund” [hey, works quite well to give yourself an expected cash allowance for ” fun money” each month to prevent any “where did that money go?” spending! :)]     Actually, the family is dying over earmarking some money this year also to buy new furniture with(we are still pretty much living on college/starting out furniture, at the moment). I’m just such a tightwad at the moment and don’t want to spend money on furniture ;(

Total household income at the moment as just dropped this month because my wife has been laid off from work for the 2nd time this year. My income is hard to predict because like any small, self-employed business, it’s based on how well I am doing at the moment. In my current business setup and agreement, it seems to bounce between 120k per year and 200k per year. Tracking my performance over the past 4 months suggests that i’m averaging around 150k. If my wife wasn’t laid off, that would put us well over 200k per year, but i’ll make 15ok work just fine for now until she finds work. This income of mine is also limited to the next 3 years of my business contract(i’m currently splitting half of my business revenues with a franchise owner 🙁  and this practice will be 100% mine in 3 years, although I plan on starting my own franchise soon, while I still own half of this one 😉 . With the right planning and continued focus and hard work, I can triple my income in the next 3 years.

The only financial house cleaning that I believe I need to do at the moment is to refinance the mortgage on my rental property to a low, fixed rate. This property has been rented out for the past 4 months and the rents received just barely cover the monthly mortgage, tax and insurance costs at the moment, so i’m not exactly positively geared on the investment right now. This house was our first home and foolishly, we purchased it with no money down and with an ARM loan of 280k. The price of the home was a good purchase value because the home is in one of the most highly proment and sought-after locations of the city, however, the interest rate on that mortgage averages around 9% right now and is available for refinance without penalty next month, so you can take a guess what ole’ Scott will be doing next month, right? The only question I have about when I refinance it to a low, fixed rate is: Do I attempt to pull some cash out of it if the bank allows me to? My new 7MIT gut says, Yes! Even with a 300k mortgage refi on this property, and a 20k cash takout, I will be just slightly positively geared with rent payments received, but that’s just for right now. As soon as my current tenants are ready to leave, you guessed it, the rents will be going up a bit, given market conditions and I should be positively geared by 100-200 bucks per month, which will be thrown into the money market account and eventually reinvested of course.

I am thinking that we should keep at least 15-20k handy in a separate money market account to cover property repairs/dammages, un-rented months, etc.. seeing as though real-estate is going to be one of my big investment vehicles of choice, so the cash-out refinance might be a smart move to create this fund with and then leave it alone except for “rental rainy days.”

Well, I guess that about sums it all up for now. Any feedback or advice would be greatly appreciated.

Otherwise, I guess it’s time to jump aboard for the trip!

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Reader Comments


Nice work over the past 12 months on your Net Worth. It’s a testament to your self-discipline and the horsepower (pun intended) that your job has as a financial engine that you’ve been able to move so far in a year. I’m envious…of the income that is, I’m not envious of the doctoring bit. 🙂

I think buying the commercial property your business is in is a great idea. In addition to your business becoming an owner rather than a tenant, it will put you in a great position if you ever sell the business. This is becuase selling the business doesn’t necessarily mean selling the property. I can see an opportunity to just rent the office space to the new business owner.

Good Luck,

Thanks Jeff, I really appreciate it! I think one of the biggest processes for me to expand financially in my field is to own a couple of clinics and their respective buildings, then just hire dr.’s to run those clinics while paying them very good salaries that make them want to stay put and not have to deal with the pressures of ‘ownership’.

It’s the way I started out for myself, but this year i’ve taken steps across the bridge to the other side as an owner.

Scott, welcome to the crucible of leadership. I’m convinced that regardless of product, process or task the leadership responsibility is the most fun.

The hardest part you will find as you move forward leading your business is learning that you can trust others to do their job (although some need more monitoring than others) and that the result is what’s most important rather then the approach.

My greatest successes as a leader in the military started to come when I realized I couldn’t do it all on my own and that I HAD to rely on the good work of others. Most of your future followers will not do the work “exactly the way you would.” Overcoming this mental hurdle and letting go in that regard will multiply your successes quickly.

I look forward to watching it happen.

@ Jeff – good point! Scott, you’ll be needing this:

“The E-Myth Physician: Why Most Medical Practices Don’t Work and What to Do About It”

@Scott – Good timing on refinancing, rates are still on the down trend now. I’ve been following since I’m about to refinance too.

@ Jeff – Yeah I know what you mean, i’ve already been there over the past couple of years. I’ve trained other doctors to be able to run their own practice the past couple of years and used it to get my “training” on how to do so, and letting go is by far the hardest part. As a squad leader in my Army days, I also learned this.

@ Adrian – I have it already, it’s a great read!

@ Mark – You got it Mark, now’s a better time than ever to refi! I’m amazed that i’ll be positively geared on a home that i’ve only owned such a short time after refinancing, but the home is in such a phenomenal part of town that I couldn’t dream of selling it.

Good summary of where you are and have been, Scott. As I’m not the expert here by any means, I will throw something out and let the experts address its merits.

Something I’ve thought about is the amount you want to set aside for having a rental vacant. Granted that a single family home is more likely to see this, I would think that undercutting your competition will help ensure that your property is not the one that is sitting vacant, as long as you are not losing on it. I would also think that inserting annual rent raises, at least keeping par with the COLA (if you and Jeff are familiar with that (Cost of Living Allowance), “inflation” for the rest of us) then the rent will automatically grow to cover the new mortgage (which I assume you will now have “Fixed”? :))and I would suggest a clause that addresses the rent would also rise based on the market conditions, but no less than a fixed amount per year (say $50-150, depending on what would be 2-3% or whatever inflation rate reflects a Market Basket of Goods for Louisville KY). With so many losing their jobs, you don’t want to end up with deadbeat tenants or a long vacancy because they can’t meet your rent rate. I am not sure what your major industries are, but I wouldn’t want to have to rely on the courts to help me evict a tenant who’s fallen on hard times (nor want to be the one who does it either). Just my thoughts on that…using a different strategy to be the one who’s not vacant (and perhaps keep them respecting the property? it sounds like it’s a nice place, a home)

The MBA program at OSU forced the teams (we were all teamed up) to do what Jeff discovered as well. The professors made sure that we did not have the time to do all the work that needed to be done, so we had to depend on each other to do parts and “come together” – I wish all my coworkers could always have been in such a program – we called it a “collegiate” atmosphere where I just worked, but even so, there was a much more gung-ho attitude in the program. Jeff seems to have some good ideas about those who need a little more hand-holding. I think my first hire (the one I left behind to fill my vacancy now) was a bit more that way than I expected. (Maybe I can discuss with you off-line one day Jeff and get some pointers so I am more cognitive on my next hirings 🙂 )

@ Diane – nice idea about the ‘ratchet clause’ (i.e. rents going up with inflation or 2% WHICHEVER IS THE GREATER) … some states have laws around this for residential (so please check), which is another reason why commercial RE can be better, because you can write pretty much whatever the market (i.e. your tenants) will bear into your leases.

I typically suggest retaining 25% of gross rents for either residential or commercial to cover contingencies (vacancies, repairs & maintenance, etc.) … when the fund gets too large, you can consider moving some back into investments (but, keep putting aside the 25%).

@ Debbie & Adrian – Excellent points all around!

I am definitely thinking that commercial RE is the way to go from both an appreciation and rent standpoint and I may consider this rental as being my only residential, unless of course I run into a killer steal.

@ Scott – I am of much the same mind-set … although, I haven’t yet found the residential ‘killer steal’ that you mentioned, and I’ve been looking for nearly 5 years 😉 Mind you, I’m also strugging to find a commercial ‘killer steal’ either … the one that I’ve put an offer into hasn’t been accepted, yet. However, I’m still posting the ‘numbers’ on this on Monday …

I’ll definitely look forward to that post!