Financial Samurai

Slicing Through Money's Mysteries

A Pre-Retirement Checklist For Post-Pandemic Life

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Having a pre-retirement checklist post-pandemic is a smart move. Retiring from a job after years or decades of work is a scary proposition. This fear is one of the reasons why retirement researchers who feel confident about their safe withdrawal rate assumptions still won’t retire. It is much easier to pontificate about retirement when you are still gainfully employed.

One of the top 10 worst times to retire is during a pandemic. With so many things shut down, spending all your days at home doesn’t sound like a great retirement at all. There are only so many books you can read, Netflix shows to watch, and meals to have with your family before a deep sense of dissatisfaction begins to seep through your veins.

The decline in mental health is a HUGE issue that is currently being underreported. The rise of clinical depression is no joke.

People who have little-to-no money worries are getting divorced. Normally peaceful retirees have taken to social media to wage jihad against others they don’t know. When there are few release outlets, there is a tendency for people to manifest the worst version of themselves. Prolonged isolation can be dangerous.



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If You Can’t Beat Institutional Real Estate Investors, Join Them

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A recent WSJ piece entitled, If You Sell Your House, The Buyer Might Be A Pension Fund, caused some commotion. The article highlighted how competition is heating up for single family homes due to demand from institutional real estate investors.

When I read the article, I was surprised to see Fundrise, a long-time FS supporter, mentioned in the second paragraph. Usually, you hear institutional real estate investors like BlackRock in the news. The article is behind a paywall, but here’s the snippet the WSJ allows non-subscribers to read.

A bidding war broke out this winter at a new subdivision north of Houston. But the prize this time was the entire subdivision, not just a single suburban house, illustrating the rise of big investors as a potent new force in the U.S. housing market.

D.R. Horton Inc. built 124 houses in Conroe, Texas, rented them out and then put the whole community, Amber Pines at Fosters Ridge, on the block. A Who’s Who of investors and home-rental firms flocked to the December sale. The winning $32 million bid came from an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

The country’s most prolific home builder booked roughly twice what it typically makes selling houses to the middle class—an encouraging debut in the business of selling entire neighborhoods to investors.

“We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin,” the builder’s finance chief, Bill Wheat, said at a recent investor conference.



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How To Convince People You Are Middle Class When You’re Actually Rich

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As the wealth gap continues to widen, it may be beneficial to learn how to convince people you are middle class when you’re actually rich. Otherwise, you might become target enemy number one when the revolution comes!

To get things out of the way, I feel rich. Not only do I feel rich, but I also have enough passive income to be time rich. Being time rich is my favorite form of wealth. After chronicling my journey to financial independence since 2009, there’s really nowhere for me to hide. Hopefully, people will give me some credit for all the years of hustle since graduating from college in 1999.

To avoid the guillotine, my hope is that consistently writing free content 3X a week to help everyone achieve financial independence will be appreciated. After all, I’ve got nothing to sell, except for a severance negotiation book, which many readers have said gave them the courage to change their lives for the better.

Even when many large media sites put up a paywall during a global pandemic, Financial Samurai stayed free. My goal has always been, no matter your level of wealth, to provide access to anybody looking to improve their personal finances.

Besides, as a minority, there should be more leniency as well when the uprising comes. It’s cool to be a minority nowadays. That is, unless Asians are considered not enough of a minority worth fighting for. In which case, please have mercy!



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The Easiest Way To Make Money From Home

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Let’s say the next black swan event isn’t a pandemic, but a zombie apocalypse. Or maybe World War III breaks out due to a fight for scarce resources. Clearly, instead of venturing out into the wild, we all need to find the easiest way to make money from home!

The pandemic has been a little strange for our family. Before all the lockdowns began, I had already decided to try and make more money online. My son turned two in 2019 and we faced a new expense: $1,950/month for preschool. The weight of $2,200/month healthcare premiums plus $1,950/month preschool tuition started cracking my back.

We wanted him to go to preschool to learn how to play with others. With an anticipated more difficult pregnancy with baby number two and another expected 3-6 months of sleepless nights postpartum, preschool would be a welcome help in 2020. Then the virus came.



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Best Places To Invest In Commercial Real Estate In 2021 And Beyond

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As we finally come out of the pandemic, let’s to take a look at the best places to invest in commercial real estate in 2021 and beyond.

Inflation has become one of the top issues for investors this year. If inflation does begin to accelerate, I believe owning real assets is one of the best ways to profit. Inflation not only whittles down the cost of debt, it also boosts the principal value of you real estate holdings.

Stocks have already had a great run. Now we are seeing strong demand for single family homes. A recovery in commercial real estate seems like a high probability.

I’ve invited CrowdStreet, my favorite real estate crowdfunding platform for accredited investors to share their thoughts on what’s going with commercial real estate today. CrowdStreet will also reveal the best places to invest in commercial real estate for the future.



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When Do You Finally Feel Rich? It’s Not Just About The Money

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When do you finally feel rich?

There’s a saying that goes something like this: To feel rich, take whatever you earn and triple it. Once you get there, triple it again. In other words, due to hedonic adaptation, it’s impossible to ever permanently feel rich!

We all know that making a top 1% income means you are technically rich. But I’ve noticed on my path to financial freedom there were several times when I felt incredibly rich and money wasn’t the dominant reason. Maybe you can share some of the times you felt rich as well.



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Don’t Make Over $400,000 A Year: Look At How Goldman Analysts Suffer

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If you want to be happy, don’t make over $400,000 a year at your job. It usually requires long hours and lots of stress to make over $400,000 a year. Any envy about people making high incomes is often misplaced. Earning multiple six-figures doesn’t just come to you.

Further, if President Biden gets his way, he will eventually get around to raising the top federal marginal income tax rate to 39.7%. The combination of long hours, high stress, and higher taxes makes the grind not worth it.

I’m sure some of you who don’t make over $400,000 a year think you’ll happily go through a lot of suffering to make such an elevated income. My hope is that you actually do so you can realize making a top 1% income or even a top 0.1% income is not very fulfilling.

I’m also sure some of you who are currently making over $400,000 a year are happy with your current situation. I mean, who cares about finding love or spending time with your kids when you can make so much money! Zoom calls 8X a day for the win!

For the disbelievers out there who think it’s worthwhile to make $400,000+ from a day job, let me share some insightful feedback from a recent Goldman Sachs analyst survey about their well-being.



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Remodel With Permits Or Without Permits? A Cost Benefit Analysis

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One of the benefits of property ownership is that you can remodel based on your tastes. Further, you can increase the value of your property by expanding its livable space. When the time comes to remodel, you will face a dilemma of whether to remodel with permits or without permits.

In this post, we’ll go over:

  • My history remodeling with permits
  • How long it takes to get a permit
  • Additional costs of remodeling due to permits
  • The different types of permits
  • Trying to pass final inspection
  • Why you should remodel with permits
  • Why you may want to skip remodeling with permits
  • How remodeling with or without permits might affect the value of your home


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The Value Of A Severance Package Has Gone Way Up: Take Advantage!

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It dawned on me a severance package can be valued like a risk asset (stocks, bonds, real estate etc). The value of a severance package can go up or down based on its projected income, your need for a financial buffer, and your ability to negotiate properly.

Enhanced federal unemployment benefits since the pandemic began have helped save millions of Americans from financial ruin. For those of you who are strategically looking to leave your job, enhanced federal unemployment benefits have also increased the value of a severance package. After all, unemployment benefits are a key income stream that come with a severance package.



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Life Insurance Needs When You’re Financially Independent Or Retired

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Life insurance is a good idea if you are still on the path to financial independence. If you have debt and dependents, getting life insurance is a no-brainer. But do you still need life insurance when you’re financially independent or retired?

To answer this question, we must first define what financial independence means and how it relates to one’s life insurance needs. Then I’ll discuss various levels of financial independence to determine whether getting life insurance is appropriate or not.

If you’re looking for a life insurance policy, check online at PolicyGenius. The company highlights the most affordable policies based on your customized needs all in one place.



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Use Bad Pricing Estimates By Zillow And Redfin To Your Advantage

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Bad pricing estimates by Zillow and Redfin are commonplace. Despite starting in 2004, Zillow’s estimates are especially unreliable for some reason. However, you can use bad pricing estimates to your advantage when buying or selling property today.

Over years of comparing the two, I’ve noticed Redfin’s pricing estimates are more accurate. Further, Redfin is much quicker to update the final sales price of a home after it goes pending. But even Redfin has some pricing issues as well.



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Why Real Estate Is Less Risky Than Stocks And The Irony That Follows

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There is a never-ending debate between real estate versus stocks as a better investment. Currently, ~40% of my net worth is in real estate while ~30% of my net worth is in stocks. Perhaps the main reason why is because I believe real estate is less risky than stocks.

As I’ve gotten older and thankfully wealthier, I had thought I would like stocks more given there is no maintenance required in owning stocks. However, the opposite seems to have happened.

As stock valuations have risen, I’ve become more hesitant in buying stocks. And with interest rates so low, I’ve got little desire to buy bonds.

Therefore, my capital has naturally gravitated towards real estate, which is a beneficiary of low interest rates, higher inflationary expectations, and an increased desire for all of us to live better post-pandemic. After all, we are permanently spending more time at home.



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Commercial Real Estate Outlook 2021 – CrowdStreet Survey

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After the unforeseen volatility of 2020, CrowdStreet wanted to know how individual investors were thinking about real estate investing in 2021. CrowdStreet was able to conduct a survey with 1,200 respondents, one of the largest of its kind. The survey results provide an insightful commercial real estate outlook for 2021 and beyond.

I’m particularly interested in their commercial real estate outlook given my existing 14 CRE investments worth roughly $500,000. Further, my main focus for 2021 is investing in private real estate investments given I dislike stock market volatility.

As an income-seeking investor who already has enough growth stocks, real estate provides the diversification I want in this economic recovery. At this stage, I’m much more comfortable investing in emerging real asset opportunities rather than expensive stocks that have already run.

CrowdStreet is one of the premier real estate crowdfunding platforms today. Their focus is on individual commercial real estate investments in 18-hour cities. Given the demographic shift towards lower-cost areas of the country, CrowdStreet is in the right space at the right time.

Let’s find out the level of interest survey respondents have for real estate, their asset class and regional preferences and more.

Commercial Real Estate Outlook For 2021 And Beyond

A whopping 96% of respondents said they planned to make at least one commercial real estate (CRE) investment this year. Almost 30% are aiming to make four or more new investments.

How many CRE investments will investors make in 2021?

Compared to 2020, investors told CrowdStreet they’re planning to temper their exposure to the stock market. Only 31% plan to invest more in stocks. While 48% will actually invest less in bonds (only 7% plan to invest more). That’s in comparison to the 55% who expect to invest more in CRE this year.

Commercial Real Estate Outlook For 2021 And Beyond

The American Association of Individual Investors tracks investor sentiment week over week. While pessimism fell to a 6-week low in February, it’s worth noting that investor sentiment and volatility often go hand-in-hand.

Given the roller coaster that was 2020, it’s not surprising some investors are looking to minimize their exposure to the stock market. Many are looking to real estate as a way to diversify their portfolios.

When CrowdStreet asked investors why they were interested in CRE, diversification edged out a win as their number one reason.

Why are you interested in investing in CRE

What kinds of commercial real estate are investors looking to invest in?

According to the Allen Matkins/ UCLA Anderson Forecast biannual commercial real estate survey, “investors are optimistic on multifamily and industrial product, but for retail and office, the outlook is dreary.”

CrowdStreet’s investor survey echoed this finding. Multifamily and industrial topping the most-favored list. Meanwhile, a whopping 75% of respondents showed no interest in retail.

Favorite Commercial Real Estate Asset Classes
[Multifamily #1]

Why are investors so bullish on multifamily?

Why are investors seemingly so confident in multifamily? With job losses mounting at the outset of the pandemic, there was immediate concern we’d see significant spikes in vacancy rates and lease defaults.

However, as the pandemic unfolded, we witnessed a noticeable shift in renter behavior. People migrated from highly populated urban centers to the suburbs in search of larger units and less densely populated multifamily communities.

Overall vacancy rates for suburban multifamily declined, with a 6% national vacancy in Q3 2020. While downtown multifamily occupancy increased to around 9%.

However, government intervention helped protect this sector with both a monetary stimulus, as well as by implementing an eviction moratorium. Consequently, rent collections never dropped below 93% in 2020, as reported by the National Multifamily Housing Council. Final collection rates were, but still close, to 2019 rates. 

Renters may be on the move, but everyone has to live somewhere.

What is the bull case on industrial property?

When it comes to industrial, investors have reason to believe in the long-term success of this asset class. Industrial property values steadily increased over the course of 2020 thanks, in large part, to the dramatic spike in online shopping driven by the pandemic.

While the stratospheric growth rate of 2020 will almost certainly temper in the years ahead, a report published by Green Street Advisors in October 2020 anticipated that 30% of all retail sales will occur online by 2030.

Translating that growth rate to demand for industrial real estate, JLL projects that the U.S. will require an additional one billion square feet of industrial real estate by 2025.

Asking rents are expected to continue to increase year-over-year, according to Cushman & Wakefield. While Green Street Advisors projects the industrial sector to be one of only two asset types (along with manufactured housing) to see strong net-operating-income (NOI) growth in 2021.

Why the worry in retail real estate?

On the flipside, it’s not hard to see why investors are wary of retail. As the second hardest hit asset type after hotels, the retail sector entered 2021 in a weakened state.

Aside from grocery stores, most retail locations still remain severely limited in their operations. Until the wide-spread distribution of a vaccine, they will likely be allowed to open only under strict safety guidelines. 

In addition to what, CrowdStreet found that investors also had a preference for regional location. The Southeast was the clear region winner, beating the Midwest and Mountain Region by 13 percentage points. 

Favorite Commercial Real Estate regions for 2021 and beyond

Institutional investors agree. Invitation Homes and Rockpoint Group formed a joint venture to acquire and operate single-family rentals in the Western US, Southeast US, Florida, and Texas.

Meanwhile, multifamily firm RangeWater launched an $800 million platform to build and operate single-family rental communities. This is what CrowdStreet calls Build-to-Rent, in the Sunbelt region. 

Last but not least, CrowdStreet wanted to know if there were any deal specifics that investors valued. 

What type of deal specifics do investors value?

Overall, investors focused on reliability when evaluating an investment opportunity. Well over half marked Sponsor Experience and the Overall Business Plan as very important to their evaluation process.

The next most important factors for investors when evaluating a CRE investment opportunity are Targeted IRR, Potential Cash Flow, Risk Profile, Asset Class, Geography, and ESG (Environmental, Social, Governance) factors.

Most important factors when evaluating a Commercial Real Estate opportunity

After the 2020 roller coaster, it seems like investors are valuing sponsors who have experienced several economic cycles and successfully weathered the ups and downs more than other factors. 

And it makes sense. When you bought your house, think about how much due diligence the bank did on you versus the property. Maybe there was a two-page report that valued the house and land. But underwriters probably had 50+ pages on you and your financial history. That’s because the bank knows that you are the risk factor, not the house. 

When it comes to CRE, the firm behind the deal (sponsor) is the one responsible for shepherding an investor’s capital through the ups and downs. Investors want to know they can trust the folks they’re giving their investment to.

As one investor told CrowdStreet, “I like value-add with the right business plan and the team to see it through.”

Investing In CRE In 2021 And Beyond

Across the board, CrowdStreet found that investors value real estate’s multifaceted benefits. Investors are particularly using CRE to spread out the risk in their portfolios and to protect their capital.

Investors are looking to invest in regions and asset classes that were on the rise before March 2020 and, ergo, will likely recover first. The commercial real estate outlook looks promising as the vaccine rollout continues.

When evaluating a deal, I agree with survey respondents that selected Sponsor Experience as the most important factor. I want to invest with a sponsor who has been through the good and the bad. Investing with a sponsor who has only seen a bull market is not ideal.

In a low interest rate environment, real estate is my favored asset class to generate higher yields and capital returns. As an accredited investor, you can join CrowdStreet here and follow the latest investment offerings. I prefer investing in private real estate investments versus expensive stocks at this juncture.

Thanks to CrowdStreet for providing their survey insights with all of us and being a continued supporter of Financial Samurai.

How To Invest And Profit In A Rising Interest Rate Environment

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Whether you like it or not, interest rates are rising once more. With corporate earnings rebounding and the end of the pandemic in site, the expectations for higher inflation are growing. Therefore, this article will discuss how to invest and profit in a rising interest rate environment.

Even though we are in a rising interest rate environment, I’m in the camp that interest rates will stay low for years to come. Here’s why:

  • Information efficiency
  • Economic slack
  • Contained inflation
  • Coordinated Central Banks
  • The growth of other countries such as China and India and their continued purchasing of US debt
  • The growing perception that US dollar denominated assets are the safest assets in the world
  • A 35+ year trend of declining rates is telling us we’re more adept at managing inflation with each new cycle that passes

However, there will be points in time where investors will face a rising interest rate environment. After all, the Fed Funds Rate (FFR) is currently at 0% – 0.25% and inflation is picking up post-pandemic. The 10-year yield bottomed at 0.51% in late 2020 and has since climbed to roughly 1.7% at the time of this post.

With the S&P 500 at all-time highs and the U.S. national median home price also at new highs, inflation is clearly on the horizon. Therefore, investors need to shift their thoughts on how to invest and profit in a rising interest rate environment.



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10 Million Dollars: The Ideal Net Worth Amount For Retirement?

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I was talking to a tennis friend of mine who said his sister checked out once she cleared 10 million dollars. She was 37 when she decided to quit her job and go on an Eat, Pray, Love journey to Southeast Asia. She had made a bulk of her fortune as an early investor in an internet consumer company.

My friend and I then got to talking about other people we knew who checked out in their 30s and 40s. They too, had cleared over 10 million dollars in net worth or investable assets. They had all been early employees at successful startups. Or they had risen up the ranks at a big tech company while holding a lot of shares.

Even a 30-year-old softball buddy of mine who worked at Uber said he’s shooting to have a $10 million net worth before he retires.

As a personal finance blogger, I subsequently got to thinking: Is 10 million dollars the ideal net worth amount for retirement? Is 10 million actually the new one million due to inflation?

Top One Percent Net Worth

10 million dollars is a lot of millions. If you have a 10 million dollar net worth or higher, you have a top one percent net worth in America. Therefore, if you can’t retire off 10 million dollars comfortably, you’ve got some serious problems!

The sad part about wondering whether 10 million dollars is enough to retire comfortably is that plenty of people who make a lot of money still go broke. Just look at so many ex-NFL players who end up with very little soon after their careers are over. The reason why they end up broke is due to a lack of financial education.

Good financial education will compound on itself. It will pay dividends for years to come. One of the main reasons why I’ve consistently been publishing on Financial Samurai since 2009 is to help people reach financial freedom sooner. We’ve only got one life to live and schools aren’t willing to impart any personal finance wisdom.

For fun, because this is what personal finance enthusiasts do, let’s discuss whether 10 million dollars is the ideal net worth for retirement. Of course, we can always retire with less. Most have. But where’s the fun in that?



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Better To Invest In Growth Stocks Over Dividend Stocks For Younger Investors

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Do you know who missed out on great growth stocks like Tesla, Apple, Netflix, Google, Facebook, and more over the last 10+ years? Dividend stock investors. For younger investors (<40), I believe it’s better to invest mostly in growth stocks over dividend stocks. With growth stocks, you increase your chances of accumulating more capital quickly.

You’d rather invest in a company that is providing more capital appreciation while you are working. After all, earning dividend income is less important when you have job income. Instead, building as big of a financial nut as possible with growth stocks is more important.

However, once you are retired or close to retiring, you can shift toward dividend stocks for income. You shouldn’t have as high of a tax bill in retirement due to a lack of W2 income. Further, dividend stocks are also relatively less volatile given their stronger balance sheets.

Dividend stock investing is a great source of passive income. In fact, I rank dividend stocks as a top source of passive income. The problem is, with dividend yields relatively low at 1-3% you need a lot of capital to generate any sort of meaningful income. Further, as a minority investor, there’s no way to improve the dividend payout ratio.

Even if you have a $1,000,000 dividend stock portfolio yielding 2% that’s only $20,000 a year in dividend income. Remember, the safest withdrawal rate in retirement does not touch principal. Further, you must ask yourself whether such yields are worth the investment risk.



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The Recommended Split Between Passive And Active Investing

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Passive and active investing are two ways to make investment returns in the stock market. Since my first job in finance, I’ve always actively invested some of my funds to chase unicorns. The question is: what is the best split between passive and active investing?

If you are only a passive investor, you won’t be able to outperform the market (S&P 500 or your index of choice). But at least you’ll save on fees and grow with the market. You’ll also outperform people who don’t even bother investing in the stock market.

However, if you are an active investor, you have a chance at outperforming the market.

You can put some money to work in companies you love whose products you use. You can buy stock in companies that have rejected you. Heck, you can even take a punt at finding the next multi-bagger winner.

It was my active investment in a now defunct Chinese internet stock in 2000 called VCSY, that enable me to come up with a 20% down payment on a San Francisco property in 2003.

There is always a hot stock that could make (or lose) you a quick fortune. They are just hard to find and time right. But that doesn’t mean you can’t try with the proper risk parameters.

Hard To Outperform In The Long Run

Unfortunately, the track record for outperformance isn’t that great for active investors. We know from the data that investing in passive index funds over active funds is the way to go over the long run.

No rational person would keep on investing in an actively managed fund or hedge fund that regularly underperforms its benchmark. Unless you are truly a gambling addict, no rational person will continue to day trade stocks if he is consistently losing money.

Yet, despite the logic, active equity funds still account for about 50% of the entire assets under management of all funds. Why?

The simple reason is that a minority of active equity funds do outperform their respective benchmarks. Thanks to social media, the appearance of people who outperform is also amplified.

When we see such outperformance, this creates hope. We, humans, live on hope as well as a good dose of investing FOMO.

In this post, I’d like to share my thoughts on various splits between passive and active investing in the stock market. I do believe investors should invest some of their capital in individual stocks and/or actively-run funds. I’ll also discuss which type of person is most appropriate for each of the four splits.

Please do not confuse the percentage split between passive and active investing with the asset allocation between stocks and bonds, and other risk assets or your net worth asset allocation.

The split between passive and active investing is part of your overall stock allocation. Although you can clearly be an active and passive investor in bonds and other asset classes as well.



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Surviving Off A $400K Income Biden Deems Rich Enough For Higher Taxes

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The average net worth for the above average person is large

Deca-millionaire Democratic President, Joe Biden, has stated he will raise taxes on people making over $400K a year. Biden has called anybody who makes more than $400K “rich” and should, therefore, pay “their fair share” in taxes.

Further, Biden has stated once you make more than $400K a year, you will face a top marginal income tax bracket of 39.6%, up from 37% currently. In addition, you may likely have to pay FICA tax on income above $400K despite a cap on benefits.

Under billionaire Donald Trump’s tax plan, only after an individual makes over $518,401 does he or she pay the top marginal income tax rate of 37%. For married couples filing jointly, their income would have to breach $622,051 before facing a 37% marginal income tax rate.

$400K For Individuals Or Couples

It is STILL not clear whether Biden is making the $400K income threshold for the top marginal income tax rate for individuals or married couples.

If the $400K pertains to married couples only (most likely), then the income threshold for individuals facing the top marginal income tax rate will likely decline to somewhere around $250,000 – $300,000.

If the $400K pertains to individuals and married couples, then high-earning individuals best not get married! It would be much more tax-efficient to earn up to $400K per individual and just live happily ever after with another $400K-earning individual.

Now that the Democrats control both chambers of the house, federal income taxes are undoubtedly going up for the highest income earners. Expect to see corporate income taxes also go up and the estate tax threshold (death tax) also come down from $11.7 million per person as well.

2021 Federal Income Taxes - Surviving off a $400K Income


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Three White Tenants, One Asian Landlord: A Story About Opportunity

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I realized the other day that all my tenants are White. I’d never thought about my tenants’ racial makeup until I read an article by Washington Post journalist, Michelle Singletary, entitled, “The Legacy Of Slavery Made My Grandmother Fear Investing.”

Michelle writes how discriminatory policies of the past shaped the way her grandmother approached investing. Her series of articles provides an interesting personal perspective on why there is a racial income and wealth gap today.

Here are some passages from her article that stood out:

When my first employer introduced a 401(k) retirement plan, I sought advice from Big Mama. But she actively discouraged me from “gambling” in the stock market.

“That’s for White folks,” Big Mama said. “They can afford to lose money.”

“The legacies of slavery, Jim Crow, and the New Deal — as well as the limited funding and scope of anti-discrimination agencies — are some of the biggest contributors to inequality in America,” says a 2019 report by the Center for American Progress

So, yes, it’s going to take more than a financial workshop to overcome the anxiety my grandmother lived with all her life and passed on to me.

There was only one investment that Big Mama trusted: her home.

The last line about Big Mama trusting only one investment, her home, really resonated with me.

This article will share some of the following insights:

  • Why there are so many Asian landlords and small business owners
  • Why real estate and small businesses are so highly valued among many minorities
  • How the lack of equal opportunity changes behavior
  • Where the belief of not depending on anyone but yourself comes from


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How Much Does Life Insurance Cost By Age And Gender?

Updated: by 32 Comments

Life insurance used to be cumbersome to research and purchase, but now it’s easier than ever. Not only is there a wealth of information online about life insurance, you can compare free quotes and apply for life insurance policies in minutes right from your couch. So just how much does life insurance cost today anyway?

To find the answer, let’s take a look at what factors impact the price of a life insurance policy. Then we’ll take a look at average price ranges for life insurance by age below.



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The Biggest Downside To Paying Off Your Mortgage Early

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If you’re focused on paying off your mortgage, good for you. It’s generally always good to pay down debt. However, I’d also like to share with you the biggest downside to paying off your mortgage that may surprise you.

It’s been six years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003.

For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.

Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was the extra ~$2,500 a month in cash flow, which went straight to savings or investing.

Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what’s the point of it all? 

Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.

In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!

Suddenly, my work felt more meaningful because if I stopped paying my mortgage, I’d lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.



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Fundrise Overview And The Future Of Real Estate

Updated: by 35 Comments

I’m bullish on real estate in 2021+. With multiple efficacious vaccines, an accommodative Fed, continued low mortgage rates, another round of stimulus, work from home here to stay, the desire to own income-producing assets, and pent up demand, real estate has a bright future. Here is the latest Fundrise overview.

Fundrise is a leading real estate crowdfunding platform for non-accredited and accredited investors. Founded in 2012, Fundrise pioneered the eREIT asset, a private diversified real estate investment trust that enables everyday people to invest in private real estate once reserved for ultra-high net worth individuals or institutions.

Currently, Fundrise manages over $1 billion in equity and has over 130,000 investors on its platform. Due to the private nature of its investments, there is less visible volatility on a day-to-day basis. Further, historical returns have stayed relatively consistent, despite the stock market gyrations. Of course, past performance is no guarantee of future performance.

For those of you looking to diversify into real estate passively or increase your real estate exposure, here’s an interview with Ben Miller, Founder and CEO of Fundrise.

Not only do I appreciate the innovation that has come out of Fundrise since the company began, I also appreciate their investment analysis and annual market outlook. Their focus on market fundamentals is something I really appreciate. Their investment philosophy is also aligned with my own. Fundrise is a gracious sponsor of Financial Samurai. 



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The Best Multifamily Investment Opportunities Post-Pandemic

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One of my financial regrets was not buying a multifamily investment property in my late 20s. Instead of taking advantage of multifamily investment opportunities to generate more passive income, I decided to buy a four bedroom, three and a half bathroom single family home and live larger instead.

The house wasn’t huge at ~2,300 sqft. But it was too big for my girlfriend and I at the time. Two bedrooms and two bathrooms were hardly ever used. Not only was there so much wasted space, the house was a suboptimal use of $1.52 million. Taking on a $1,216,000 mortgage that cost $6,200 a month was a lot and sometimes stressful.

In retrospect, a better choice would have been to buy a two-unit building for a similar price. Each unit would consist of two-bedrooms and one and a half bathrooms around 1,350 sqft each. My girlfriend and I would live in one unit and rent out the other unit for at least $4,000 a month.

Not only would our living costs have been so much lower for more than a decade, our passive income today would be at least $2,000 a month higher. Investing in multifamily investment properties is a better bet when you are young and don’t have children.

Big Pent-up Demand For Multifamily Investments

With increasing anticipation of a strong recovery in 2021 thanks to a bevy of upcoming vaccines, it’s worth getting smart on the best multifamily investment opportunities post-pandemic. The value of cash flow has gone way up because interest rates have come way down. Meanwhile, mortgage rates will continue to be very accommodative.

For evidence of pent-up demand, look no further than Airbnb’s IPO on December 10. The company was valued at $49 billion at IPO, higher than the original valuation range offering. The shares then proceeded to double in the first day of trading.

The Best Multifamily Investment Opportunities Post-Pandemic

Remember, hospitality is still largely shut down. Airbnb bookings are way down. Yet, Airbnb is now worth about $100 billion after raising capital in April 2020 at a valuation of only $18 billion.

The share price performance signifies the demand for travel, hospitality, and real estate will come roaring back by 2H2021. Therefore, you want to get long real estate before this happens. Thankfully, real estate valuations move at a much slower pace than stock valuations. Hence, the current opportunity.

I’ve invited CrowdStreet, my favorite real estate crowdfunding platform for accredited investors and Financial Samurai sponsor, to educate us on three types of multifamily properties they think are the most promising. CrowdStreet is free to sign up and explore.



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Mortgage Market Abnormalities: Take Advantage To Get The Best Rates

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When there are mortgage market abnormalities, we must take advantage to get the lowest rate and best terms possible.

Currently, there are two mortgage abnormalities in 2021 to be aware of:

1) The average 15-year mortgage rate is way below the average 5/1 ARM and 7/1 AM rate. Therefore, you should take advantage.

and

2) The average 30-year mortgage rate has been lagging behind while the 10-year bond yield has been going up. Therefore, the 30-year fixed rate mortgage looks very enticing as well.

As a result, if you are looking to refinance your mortgage or are buying a house, get either a 30-year fixed or a 15-year fixed. Both are offering the best value out of all the mortgage products that current exist today.

Credible is my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!



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Rental Properties: The Investment Case To Buy More Today

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Owning rental properties only ranks fifth out of my eight best passive income sources. However, as interest rates decline, the value of rental properties and its cash flow has increased. And as inflation increases, you want to go long real assets. Therefore, owning rental properties has currently moved up to my #1 passive income investment today.

As a financially savvy individual, your goal should be to accumulate as many underpriced cash flow-generating assets as possible. I believe this permanently low-interest-rate environment is once more favoring owning rental properties.

The S&P 500 and the NASDAQ performed incredibly in 2020. However, rental properties lagged. Therefore, I think rental properties will catch up as investors put money to work in relative laggard investments. I believe rental properties will provide a one-two punch of appreciating capital values and rising rents for owners.

As a tired father who yearns to earn 100% of his income 100% passively, it’s tough for me to accept that owning physical rental properties is once again the right thing to do. However, for the average person, buying more rentals building up a rental property empire is one of the most promising ways to build wealth.



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It’s Time To Focus On Big City Living Again: The Opportunity Is Huge

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If you want to make money post-pandemic, I think you’ve got to focus on big city living again. Big cities are where there will be the most number of job opportunities, real estate opportunities, and networking opportunities. The easiest way to profit from the return to big cities is by investing in big city real estate.

Due to the coronavirus and tremendous media hype about the death of big cities, the time is ripe to focus on big city living again. Rents have bottomed and are starting to tick up.

With several highly efficacious vaccines being rolled out, there is going to be an explosion of demand in cities such as San Francisco and New York once there is herd immunity.

I’ve been living in big cities since 1999 and every time there is a dip, big cities come roaring back with a vengeance. I see the same thing happening in 2021 and beyond.

Some of the wealthiest people I know have been buying real estate in their neighborhood during the height of the pandemic. The idea is to take advantage of fear and rare inventory to build a community for their children and extended family. Smart I say!

Big City Living Is Here To Stay

To build wealth, you must constantly try to predict the future. Because of this, you may often get beaten to smithereens by the masses for thinking differently. However, thinking differently is how you can build enormous wealth.

It is now my belief that the death of big cities is completely overblown. We’ve got roughly a 11-month window to take advantage of big city real estate buying opportunities before they disappear. Once 2022 rolls around, many of the great deals will be gone.

I haven’t been this excited in a very long time. Due to the coronavirus and tremendous media hype about the death of big cities, the time is ripe to focus on big city living again. With two highly efficacious vaccines being administered, there is going to be an explosion in demand for living in

Try and use the media to your advantage. For example, if you want to sell something, highlight the most absurdly bullish article you can find to the potential buyer and vice versa.

Since 2003, I’ve highlighted articles from various negatively predisposed sites to help me buy real estate at a discount. The strategy has been effective because people tend not to do their due diligence. Instead, they tend to just read headlines and assume it to be true.

Here’s the thing though. By the time you read things in the news, the trend is sometimes stale. For example, I’ve been writing about investing in the heartland since 2017. Only now is there full-blown mania about buying in and relocating to lower-cost areas of the country.



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Average 30-Year Fixed Mortgage Rate At Record Low: Who Is Buying?

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Average 30-Year Fixed Mortgage Rate At A Record Low: Who Is Buying?

For the longest time, I’ve been a proponent of the adjustable rate mortgage (ARM). Paying a higher rate for a longer duration than necessary doesn’t make economic sense. However, with the average 30-year fixed mortgage rate now under 3%, the bias is no longer as heavily weighted towards adjustable rate mortgages.

A sub-3% average 30-year fixed mortgage rate is so low, it must be spurring more people to buy homes. In fact, the average 30-year fixed mortgage rate is just under 3%, despite the 10-year yield ticking up in 2021.

If you’re looking to refinance, check out Credible, my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!

With a global pandemic still raging on, I am curious to know who is buying a home in this environment. Let’s read some homebuyer profiles of people taking advantage of record low mortgage rates.



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Your Chances Of Becoming A Millionaire By Race, Age, And Education

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Everybody wants to become a millionaire. Unfortunately, not everybody’s chances of becoming a millionaire are the same as the playing field is not even. This article looks at historical data on your chances of becoming a millionaire by race, age, and education.

Getting to at least one million dollars in net worth is a nice milestone to achieve. I firmly believe the majority of people reading Financial Samurai and other personal finance sites will be able to achieve millionaire status.

If I were to guess the exact percentage of Financial Samurai readers who become millionaires in their lifetimes, I would say 60 percent. This doesn’t seem like a particularly high percentage. But once you’ve read the statistics below, you’ll come to agree that 60 percent is a home run figure.

For the remaining 40%, even if you don’t become millionaires, you’ll likely still build way more wealth if you keep on reading Financial Samurai and other finance sites than the average person who does not.

Since 2009 I’ve received dozens of e-mails from readers saying they’ve busted through the $1 million net worth figure thanks to aggressive saving and investing. Many have mentioned they wish they had discovered the personal finance world sooner. But better late than never I say!

So what about the rest of the 330+ million Americans who were fortunate enough to be born or gain citizenship to our great country? What are their chances of living the champagne dream and caviar lifestyle? Let’s have a look.



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The 30/30/3 Home-Buying Rule To Follow

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The best home buying rule I can offer you is my 30/30/3 home-buying rule. I came up with the 30/30/3 home-buying rule back in 2009. It looks like many others have adopted this rule, but have sadly not given Financial Samurai any credit for it.

If you follow my home buying rule, you will have a greater chance of surviving any financial downturn. My 30/30/3 home-buying rule will also help you keep you disciplined when buying property during a hot market.

Even if you just follow one part of the rule, you will also be able to enjoy your property more because you will be less stressed about your finances.

Way too many homebuyers overextended themselves during the 2008-2009 financial crisis. As a result, most of us paid the price. Having your neighbor conduct a short sale or foreclosure isn’t good for your wealth even if you borrowed well within your means.

There is a lot of demand for real estate during the pandemic. You can get a 30-year fixed-rate mortgage for under 3%. The stock market is volatile. Finally, we’re all spending way more time at home.

It is only logical that interest in real estate has increased. However, this is all the more reason to stay disciplined.

Just look at this national home price appreciation chart during a pandemic. It is accelerating! The demand for real estate is red hot post-pandemic. Everybody is staying at home longer and wanting to own a hard asset that provides utility.

For those of you buying a home during a period of maximum uncertainty, please follow my 30/30/3 home-buying rule. Not only will the rule save you from a lot of stress, but it will also better protect our economy.



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How To Get More Life Insurance For Less Money

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Are you wondering how to get more life insurance for less money? My wife, Sydney, did just that. In this post, she shares how she was able to double her life insurance death benefit for less money with PolicyGenius. More life insurance for less money is always great. The one thing we’ve all learned during the pandemic is that tomorrow is not guaranteed. If you have debt and/or dependents, getting life insurance is a must.

At my last full-time job of 10 years, one of the free benefits that came with it was life insurance. When I first joined, I was single, didn’t have kids or a lot of debt, and was pretty carefree at age 25.

How To Get More Life Insurance For Less Money

Life insurance didn’t mean much to me back then. Today, life insurance is very important to us because we now have two kids. Sam has talked about his life insurance plans, but we had seldom discussed mine.

If you’re going to get life insurance as a couple, don’t forget to get life insurance for both people. The amount of life insurance to get will depend on each person’s ability to generate income and cover any outstanding liabilities.

During our expense audit, we meticulously tried to cut costs on every item. What we realized during this exercise was that Sam and I have been spending more than we should on several things for years. One of those things was my life insurance policy.

Given we have been saving at least 50% of our income for over a decade, we got lazy with always trying to optimize our expenses. Laziness is probably one of the number one money-makers for companies today.



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1Q 2021 Review: What’s Next For Stocks, Real Estate, And Bonds

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Before reviewing my 1Q 2021 and discussing what’s next for various asset classes, let’s talk about hard things.

Waiting for the opportune time to propose after buying an engagement ring is hard. The ring just starts burning a hole in your pocket. But do you know what’s even harder? Writing an April Fool’s Day post and not responding to a single comment for two days! I’m sorry for tricking y’all folks. I hope you will forgive me. I’m a jokester at heart.

Ever since I was a kid, I’ve also been a dreamer. Over time, I’ve noticed the more you dream, the more good things tend to come true. It must be due to one part positive mindset, one part taking action to achieve your goals. If you go about your day-to-day like a zombie, never dreaming about a better future, I’m not sure anything special will ever happen.

Buying that beachfront dream home in Hawaii costs closer to $15 million, not $10 million as the online estimates say. Sadly, there’s no way I can afford it. The funny thing is, one of my good friends can easily afford it, yet he still refuses to live it up!

If the house can earn a $900,000 a year net operating income, a 4% cap rate would give it a valuation of $22,500,000. But it probably earns closer to $500,000-$600,000 a year as the house sits empty most of the time when asking between $85,000 – $250,000 a month in rent.

When in doubt, follow this real estate investing rule: Buy Utility, Rent Luxury. It’s much cheaper to rent a luxury home than to buy one. The ongoing maintenance costs are a killer.



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Finally Bought My Beachfront Dream House! Here’s How It Went Down

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Well folks, I decided to take my revenge spending seriously and buy myself a beachfront dream house. I was going to wait until my family moved to Hawaii before making the splurge. But after such a rough 12+ months, I asked myself, why wait? I’m not getting any younger!

Ever since I landed my first job post-college in 1999, I’ve been diligently saving and investing most of my money. Despite a couple of downturns over the past 22 years, overall returns have been solid.

When it came to renting or owning, I always spent the least amount possible on my housing expense because I was working so much. For example, the first apartment my roommate and I rented was a studio at 45 Wall Street. For privacy, we just used a $20 paper room divider between us.

When I bought my first property in 2003, I spent half my budget on a two-bedroom condo instead of a much larger three-bedroom condo or a single family house. In retrospect, I wish I went all-in back then.

After being frugal for so long, I decided I would buy a dream house if one ever popped up. And amazingly, one did!



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What If You Go To Harvard And End Up A Nobody?

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Harvard University consistently is ranked one of the top universities in the world. But what if you go to Harvard University and still end up a nobody? When I say nobody, I’m just talking about being an average person working an average job. Not someone still living in mom’s garage playing video games all day at age 40.

A happy life is all about managing expectations. If you matriculate at Harvard, whether for undergrad or graduate school, great things are expected of you. And if you don’t do great things, are you a disappointment? Many would say so.

Education has been on my mind a lot lately after my son got into preschool this fall. If he likes the school, it goes through the 8th grade. Is it worth spending tens of thousands a year for the next nine years? I’m not so sure!

In addition, I was a high school tennis coach for three years observing how the kids went through the pressure of trying to get into a good university. I sometimes wondered whether their grind was all worth it. Supposedly my high school is one of the best in the city, yet not every graduate goes to a university like Harvard. In fact, most attend regular schools any high schooler could have gotten into.



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Hiring An Au Pair May Be The Best Childcare Decision A Family Makes

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If you’re thinking about hiring an au pair, you know firsthand how much work is involved in raising kids. The pandemic switched life to extreme hard mode for working parents with young children.

Thanks to the vaccine rollout, the peak of the pandemic seems to be behind us. However, we’re still homeschooling our son, at least until this Fall. It can be exhausting at times with a wild 4-year-old and a very curious 1-year-old at home practically 24/7. They get into everything!

But the days and memories we’ve had with them are also precious. We’ve far surpassed the average amount of time a parent spends with a kid a day. Further, we’ve also been able to save $24,000 so far on preschool tuition.

For those parents who are constantly exhausted, hiring an au pair could be the perfect solution. And thankfully, hiring an au pair is now more feasible due to new regulations under the Biden administration. Starting on March 31, 2021, hiring an au pair gets the green light for families in America!



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