So last year turned out to be really good for the YFS household. How good? Well I’ll let you decide.
At the start of 2011 our net worth was $122,403.43
At the start of 2012 our net worth is $246,756.54
That is some serious net worth gain! So what happened? How did we increase our net worth by $124,353.11 or roughly 100% in one year? It all started with our spending plan. I have this crazy idea that we should only live off one income and use the other income for business purposes. This has paid off amazingly well, but something also happened.
Between the both of us we managed to squeeze 30k in pay raises out of our day jobs. The reason why I say day jobs is because aside from running our own businesses we have paying w2 jobs. With that 30k we were able to do some things to substantially increase our net worth in 2011 and pay off some debt. Paying down debt does not increase your net worth, but it frees up capital so you can hopefully increase your net worth in the future via sound investment.
As many of you know we purchased our home as a foreclosure for a steep discount. Well, the crystal ball I used to buy the home in January of 2009 finally paid dividends. When I refinanced the home from a 30-year to a 15-year mortgage in September the appraisal came back surprisingly high.
That makes our primary residence attributable for $37,000 of our net worth gains
Aside from our primary residence we have 2 rental properties. 1 property we purchased in 2010 and the other we purchased September of 2011. We purchased both of those properties in distressed sales and made the much-needed renovations to get them ready for rent. We use the buy low, rent high mantra. Yea yea yea I know that’s not the saying but it’s my little twist on it. Anyways, by fixing the properties they were able to appraise a bit higher too.
Rental property 1 attributed $12,000 to our net worth
Rental property 2 attributed $27,700 to our net worth
The cool thing about our rental properties is that they pay out high margins for relatively low risk. Property 1 pays us $925 a month in rent with debt services of 130 dollars. Property 2 pays us 850 a month with a debt service of 130 dollars. What we do is buy distressed properties, fix them up and rent them to section 8 tenants. In order for our real estate empire to work we have to perform the right fixes and buy in the right neighborhoods at the right prices. We can only pull 70% equity out of the properties so the properties *must* appraise or our real estate plan isn’t self sufficient which will require us to use personal funds to accumulate properties. This is no good! So, each property must pass our cash flow analysis test and our potential for appraisal test before we even think about a deal.
The market was kind to us this year. Sometimes it’s up and sometimes it’s down but our market returns added $22010.15 to our net worth.
The most exciting thing about these type of returns is that that we won’t need the money for almost 40 years! The longer the holding period the better chance at seeing positive results from the stock market.
Last but certainly not least is that we saved money in 2011. We have $25,642.96sitting around in our various cash accounts. I think this pretty good if I factor in our ridiculous cash outlay of 2011. We had a few things that just didn’t help our networth at all.
- Paid 30K in car loans off
- Spent a lot of time having fun! (Personal money, trips, eating out, etc etc)
- A few months with unexpected expenses in the thousands
- Loaned our business a lot of money
Could we have saved a lot more money and increased our net worth even more? With out a doubt yes! We could have not loaned our businesses money and padded our stats. Also, our discretionary spending is off the charts to some. We are far from a frugal couple.
We definitely did budget in a lot of fun stuff in 2011, but we are well on our way to exceeding our goal of millionaires by 40. Once our we start drawing a paychecks from business income we probably can meet our Millionaire goal by 35. At this time we reinvest all income to grow our businesses.
2012 Net worth outlook
In 2012, I see much of the same in terms of net worth gains. We are scheduled to buy 4 rental properties and save/invest even more money since we are not saddled with 1k in monthly car debt. Since, we have a 15 year mortgage instead of a 30 year mortgage we also should see a bit more gains on our primary residence. If we can keep the unexpected expenses down we should be well on our way to another record net worth year.
Reader Actions! How much did your net worth increase from 2011 to 2012? Where could you have done better?