How I Became A Millionaire – Without Working For The Man

I am a fortunate individual. I have enjoyed a lot of freedom in my adult life, and now, at 46 years old, I’m blessed to be financially independent. Getting here has been a mixture of privilege, fortune, good decisions, and hard work (probably in about that order).

Now, if you’re willing to stick around for the next few minutes, with this EXCLUSIVE post, I’m going to show YOU the AMAZING SECRETS to my success, GUARANTEED to MAKE YOU RICH! (Or, y’know, I’m going to tell you some of the things I did that may or may not work for you, depending on your circumstances.)

After my freshman year in college, I worked as a bagger at a grocery store in Madison, Wisconsin. I was making $4.65 an hour. Once, a manager berated me when a customer complained that I had over-filled his bags. Another time, I squished my fingers into the white bread of a customer who was being a dick to his kids. After a few weeks, I got a raise to $4.75 – I quit a week later, having worked there for about four weeks. That was the last time I worked for The Man.

Privilege

I hit the life lottery when I was born white, male, straight, healthy, and American to loving, caring, intelligent parents in a community that fosters a nurturing environment (and having wealthy grandparents didn’t hurt). That doesn’t mean one can’t succeed if one isn’t all those things, it just means I had a lot of built-in privilege. It also doesn’t mean that one necessarily has it easy if one is born with all those privileges – fortune, good decisions, and hard work are still important.

President Obama was widely panned on the right for saying of business owners “You didn’t build that….” What he meant is that no person is an island. We live in a country that spends shitgobs of money on a socialist defense system that protects our nation (and often exploits other nations) – we all benefit from that. We invest in infrastructure, education, healthcare, social security, and other entitlements – we should invest more, but still we all benefit from that. And if you happen to have some of the privileges that I do, you’re on the upside of an unlevel playing field. Those of us with such privilege should at the very least acknowledge it, and should work to create a system that provides equal opportunity for all – we shouldn’t be trying to entrench that privilege, as so many seem to feel is a birthright.

One other area in which I have a lot of privilege is in fiscal help from my family. I lived comfortably while growing up, although neither of my parents made a lot of money; but both sets of their parents were fairly wealthy. We got to do a lot of fun travel throughout my childhood. When I was in college, I received a fair amount of financial help from my parents, grandparents, and my uncle, all of which reduced my financial burden when I, finally, graduated in 1996. And in the early 2000s, I began to receive annual disbursements from my grandparents that totaled around $10,000 a year for several years – a great boon to a newly married couple. When my grandmother died in 2011, I inherited about $150,000. When my stepmom died in 2017, I inherited another $90,000 or so. And eventually I’ll inherit more from my parents.

When it comes to privilege, I’m probably in the top 0.1% of people in the history of the world.

Fortune

OK, now that I got the soapboxing out of the way, I’ll tell you how I actually got rich. It started when my wife and I bought our first house in Old Town Longmont in 1999. We were able to get a 3% first-time homebuyer federal loan (thank you, social democracy!) to purchase a $172,000 home, with $5000 from my dad and $3000 from a credit card (we were still in debt from student loans to the tune of about $40,000). At the same time, because it had a separate basement unit, we were able to rent that out and went from paying over $900 a month to rent a condo to paying around $300 a month to have our own place. Then, to make matters even better, the house appreciated fairly rapidly.

A guy on my soccer team had recently gotten into the real estate biz, and he shared a spreadsheet that detailed all the benefits of owning rental property: cash flow, building equity by paying down the principal, appreciation, and tax breaks. It made a lot of sense to me, and I thought it would be exciting to try it. My wife was a teacher, and I had a mildly successful house painting company, but mostly our jobs just paid the bills – it was the equity that we had built in our house that provided enough capital to entertain the idea of getting a rental property.

My soccer friend helped us look for a place, and since there weren’t many good cash flow opportunities in Longmont, we ended up buying a condo in Fort Collins for $92,000, using an 80-10-10 loan, so we only had to put 10% down. I did a quick fix-up, and soon we were renting it, albeit for only about $100/mo of cash flow.

It went well enough that, by 2005, we were ready to expand. I didn’t like the fact that I had to drive an hour any time there was maintenance or turnover for the condo. I also wasn’t very emotionally invested in the condo – a house with some character would be much more appealing. At the same time, rents had increased enough in Longmont that there were cash flow opportunities right in our neighborhood. We bought a house just two blocks away for $230,000. We fixed it up and we were quickly renting it for decent cash flow (about $200/mo). One benefit of choosing a house I might actually want to live in, and fixing it up nicely, is that it attracted tenants who were also generally invested in taking good care of it, which meant less maintenance (and helped our neighborhood). Many of our tenants went on to buy their own house in the neighborhood.

This was becoming an addiction! In 2007, we bought a for-sale-by-owner house, also in the hood, for $235,000. We did an extensive remodel to this beautiful 100-year-old house. Everything from structural to electric to plumbing to mechanical to ripping out the lath and plaster and insulating and drywalling. Originally planned as a fix-and-rent, the remodel went so well that we decided to move in. We kept our first house as a two-unit rental, and added another couple hundred dollars of monthly cash flow.

Now note that this is when the housing bubble was bursting nationwide, and we were in the Great Recession. For many, this was a devastating time. But we had the good fortune to have a number of adjustable rate loans, all of which dropped fairly quickly, meaning we were paying down our principal even faster. At the same time, rents continued to increase in Longmont, as did our cash flow. Of course, the values of our properties were languishing, dropping to about 2003 values. But, as long as we were able to hold them, we wouldn’t feel the repercussions.

On top of that, there were good deals to be had. So we bought another place, this one with cash, for $113,500 in 2011 (my dad also invested). We did a $25,000 remodel, and were able to rent it with cash flow over $1000/mo.

Then, after bottoming out around 2012, Longmont (and Fort Collins) property values began to skyrocket, more than doubling between 2013 and 2018. The condo, which had barely appreciated in the first ten years we owned it, was suddenly in high demand. I sold it on craigslist, via an escalation clause, for $129,000 in 2015. With a 1031 exchange, I used the proceeds to buy a 125-year-old dilapidated gem in Old Town Longmont for $225,000. After another extensive remodel (and lots of help from my brother and other friends), we rented this one out for cash flow of about $800/mo. Then, after a subsequent basement finish in 2017, having put about $100,000 total into remodel work (including my labor at $50/hour), we sold this place in the spring of 2018 for $469,000.

I would be remiss if I didn’t mention that my friend Pete, aka Mr. Money Mustache, was instrumental in helping with most of the remodel projects that I did (and even provided a short-term loan for the cash house). And his wife, Simi, is a realtor who generously gave me her expertise on many of the purchases and sales.

So here’s a little tally of my good fortune along the way:

1. We bought our first property with almost no money down, thanks to generous government loan programs and help from my dad.
2. Property values appreciated at the right times for us, and, in this part of the country, weren’t completely decimated by the recession.
3. Rents continued to increase in our area – it’s a desirable place to live.
4. Our loans became more favorable during and after the recession.
5. I have a supportive family and wife who let me spend so much time on these projects.
6. I have an incredible group of friends who provided labor and expertise to make it all come together.

Good Decisions

Of course, it wasn’t all luck that made us millionaires. We recognized that real estate provided a great opportunity to leverage our way to more wealth. At the same time, as our equity grew, we maintained a fairly frugal (Mustachian) lifestyle, investing most of our extra money back into real estate and remodel work. My wife had a steady job, and that allowed me to work on real estate and other projects that didn’t have immediate remuneration. We chose projects that were fulfilling, but that would also mostly pay off in the longer term.

You may have heard of the guy who used craigslist to leverage his way from a paper clip all the way up to a house. Well, what we did was leverage our way from one house (with none of our own money down) to five houses. When you buy a house, you generally only have to put a certain percentage down, and a bank loans you the rest. Usually you put 20% down, but with our first loan, we were able to put only 3% down. 3% of $172,000 is a little over $5000 – with closing costs, we had to put down $8000. As I mentioned above, $5000 of this was a gift from my dad, and the other $3000 was via a credit card loan (my mortgage broker told me to keep that on the down low at the closing). So let’s say we had $8000 invested in our house, and we owed $167,000 to the bank. Our house appreciated over 10% per year for the first few years we owned it, but because we had only put 3% down, our investment was appreciating over 200% each year: $8000 + $17,000 + $19,000 + $21,000… after just three years, our $8000 investment had turned into over $65,000 in equity (remember we were also paying down the principal with each mortgage payment). There aren’t many investments that pay a 200% annual return.

Of course this wasn’t a typical situation. But let’s take a more typical rental property situation and see how that might play out. If you buy a $200,000 home with 20% down, your investment is $40,000. If that home is appreciating at 3% (probably a little less than the historical rate, after factoring in increasing home size), it will go up by $6000 in the first year. But since you’ve only put 20% down, your return on investment is 6000/40,000=15%. That’s a better return than you could get in most other places. But wait, you say, if you’re paying 5% interest on your mortgage loan, you’re losing $8000 per year (actually more than that at the beginning of your loan), which more than offsets your gains. That’s where rent saves the day, though. If your tenants are paying more than the cost of the mortgage, you’re getting cash flow. In this case, let’s say the mortgage (including principal, interest, insurance, and property tax) is $1100/mo, and you can rent it for $1300/mo – your cash flow is $200/mo. Let’s say you have a lot of maintenance, which cuts your cash flow in half, to $100/mo, or $1200 for the year. On top of that, the principal is $300 of the mortgage payment, so that’s another $3600 of equity per year. Now you’ve got $6000 in appreciation, $1200 in cash flow, and $3600 of principal paid off. All of the costs have been covered by rent, so that $10,800 is your return, which is a whopping 27% return on investment. You will have to pay taxes on the income portion, and eventually on the capital gains, but you will also get some tax breaks through depreciation.

We played a lot of these scenarios out before buying a place, and only took the plunge if the numbers looked right. Of course, if interest rates or rents or appreciation are less favorable, real estate might not be such a good decision.

In between buying and remodeling places, we were surviving on my wife’s steady paycheck, my more sporadic ones, and, increasingly, on the cash flow from our properties. I was winding down the painting company and investing my time (and some money) into new business ventures: among them, an electric vehicle biz and making environmentally friendly caskets. I worked with a partner on the electric vehicle biz for a few years, and even spun off a new company with another couple guys – eventually we all parted ways and I was bought out for about $145,000. With the casket business, we received a lot of good press, and there was a time when I was shipping 3-4 caskets a month around the country – I’ve since stopped shipping and only deliver locally. But between those two fairly zany businesses (and some other smaller ones), I was able to more than replace the income from the waning painting business.

Hard Work

As a property owner, the single biggest bane for me has been water issues: leaky roofs, leaky faucets, leaky toilets, leaky pipes, burst pipes, rusted out water heaters, clogged toilets, clogged drains, clogged sewer lines, flooding basements, rotting boards, you name it – water finds a way to screw things up. So, on one spring day, it was with great trepidation that I embarked on a journey to figure out why the tub wasn’t draining at one of the properties. The law of parsimony dictated that I start by snaking the drain. When that didn’t work, I went down to the basement to check the trap – only this was one of those old lead traps with a screw-off cover. I unscrewed the cap and guess what was inside? A nice little shit shower rained down upon me – well, that took care of the problem. Sadly, that wasn’t the first or the last shit shower I got to partake of at my properties.

I’m not complaining. The whole property management gig has been a highly rewarding experience. But there have been some tough situations, and I think my tenants over the years would agree that I’ve done my best to address things promptly and thoroughly.

When I started my painting company, it was a long hard slog, just trying to find those first few clients. I would walk miles going door-to-door, passing out fliers. I would take jobs as far as two hours away, sometimes working until midnight, spending the night at the job, and getting up the next morning to resume painting. My wife, after teaching all day, would sometimes join me to help finish a painting gig.

The beauty of working for myself, though, is that, after I began to build up a clientele, I could set my own hours. In the winters I had lots of free time. Once I established a crew of painters, I had even more free time. But I used this time to work on other projects, including going back to college and getting my Master’s; since I was also teaching a lab, I would sometimes do painting work in the morning, drive an hour to Fort Collins for classes, teach the lab, return home and make painting calls, then spend much of the evening working on my courses – somewhere in there I found time to breathe. It was a highly stressful, but highly rewarding time, and I came out of it better able to deal with stress.

I’ve done a number of sometimes grueling remodel projects on both the rental properties and my own house (during the original remodel, often working evenings after a full day of painting). This year I dug out my basement by hand. I figure I pulled about 80,000 pounds of concrete and dirt out of the basement, mostly two five-gallon buckets at a time. In some ways it left me in the best shape I’ve ever been. I’m still putting the finishing touches on that project.

The point of this isn’t to toot my own horn (ok, maybe a little), but just to say that I’ve come to embrace the idea of hard work. It’s of course a lot easier when that hard work is a choice. But good physical and mental labor is incredibly rewarding. I don’t ever intend to stop working – financial independence has just given me the freedom to choose what I work on.

So, yes, Obama, I did build that, but, to your point, not without a lot of help and good fortune.

Net Worth

I’m pretty sure discussing how much money you have is generally not considered polite, but it seems to be a thing in the FIRE world, so here’s a little breakdown of our wealth over time (lots of approximations and estimates here).

1999: Purchased first house and rented basement. A couple crappy cars and some furniture. About $40,000 in student loan debt. Net Worth: -$30,000
2002: Rapid appreciation of first house. Paid off debts. Net Worth: $70,000
2003: Purchased rental condo. Continued appreciation of first house, some savings. Net worth: $90,000
2005: Purchased rental house and fixed up. Continued appreciation on other properties, and paying down principal. Net worth: $130,000
2007: Purchased our current house and began renovation. Great Recession began. Net worth: $200,000
2008: Finished renovation, adding value to our house, and moved in. Began renting our first house. Net Worth: $280,000
2010: Property values dipping, but rent and loans more favorable. Small remodels on some of the properties adding value. $50,000 or so in stock market. Net worth: $320,000
2011: Purchased another property at great value and remodeled, adding instant equity. Property values continuing to languish. Net worth: $340,000
2012: Received first half of electric vehicle biz buyout payment and inheritance from grandmother. Property values at nadir. Net Worth: $530,000
2013: Received second half of EV biz buyout payment. Master suite addition to our own house. Property values increasing, rents increasing, loans getting paid down. Net Worth: $680,000
2015: Sold Fort Collins condo and did 1031 exchange for another Old Town house. Major renovation. Property values going up rapidly. Net Worth: $850,000
2016: Finished remodel and rented latest house. Built workshop at our house. Property values still increasing. Took out HELOC on my house and used it to make $25,000 in stock market. Net Worth: $1,000,000

2017: Small remodel to turn first house garage into studio. Finished basement and did landscaping at latest house. Property values still going up rapidly. Received some of inheritance from stepmom. Net Worth: $1,460,000
2018: Received rest of inheritance from stepmom. Sold latest house and invested proceeds in stock market (will have to pay capital gains). Did the Big Dig basement digout/finish in my basement. Net Worth: $1,500,000?

What Now?

Much of the “what now” question is detailed in my post “The Golf Conundrum.” The basic idea is that now my work, my projects, don’t need to make as much money. I can put more time into some leisure projects (like golf). But I also feel a responsibility to put more time and money into fulfilling projects that help others. Not to mention working to be a better husband, father, and friend. I feel blessed to be in this position.

Now it’s time to get to work!