This is month 6 of documenting my journey to financial independence.
My goals are to reach $30,000 in annual passive income within 5 years. Additionally, I am aiming to reach $1 million net worth within 7 years.
Real Estate Investment Update
Before we get into this month’s numbers, I wanted to go over a real estate deal that I just pulled out of. I would have been set to close yesterday.
I made a cash offer on a duplex in Indianapolis about two weeks ago.
It was not anything flashy, an old property from 1925. You might call that “Red Flag #1.”
Given the age, I knew there were going to be some issues with the property. However, the listing looked pretty promising. With the way the Indianapolis market is, I didn’t have time to go take a look at this property first.
All of that being said, I thought this deal looked pretty good on paper. I assumed the property needed about $10,000 to $15,000 worth of work.
It was an $85,000 duplex, which is relatively cheap for such a large metro-area, but that’s what makes Indianapolis so compelling for many investors.
On paper, I was looking at about a 10% cash-on-cash return once it was all patched up.
I was one of three offers for the property at or near asking price. The seller actually countered with a price $500 above the asking price (which shows you how bizarre this market has become). I ended up taking it and started my due diligence.
Backing Out of the Deal
Unfortunately, it was not as good as it seemed on paper.
I went down to Indianapolis see the property with an inspector, as well as the maintenance crew for the property management company I will be using. During the inspection, to name a few major items, we found:
- A large mold problem, which also suggested the need for a new roof on the property;
- Damaged floor joists in a number of spots throughout the house;
- No access to the crawl space, which was completely blocked off by a gas line;
- Backed up plumbing, presumably due to the sewer line’s age, so we could not test water in several places;
- Many damaged walls that were haphazardly plastered over; and
- A missing oven range and fridge in one unit and a missing water heater in the other.
Just about all of these items were not disclosed or shown in the listing.
In short, it would have been a lot more work than I was willing to take on. The risk was too high for the reward.
I threw up a hail Mary by asking for a $30,000 closing credit. The seller turned it down. In such a hot market, the seller could probably sell the duplex for a lot more than what I was then willing to pay.
So I backed out of the deal and we’re back to the drawing board.
One other note on real estate: the pandemic has made things very odd for financing. But financing appears to be opening back up, so we should have more opportunities in the future. But so would other investors as well.
Anyways, let’s get into the numbers.
July 2020 Net Worth Numbers
To recap, 30 days ago, we were at $71,144.81 in total net worth.
Assets – July 2020
We still have a large pile of cash relative to our net worth.
I actually moved some money out of bonds and we got a little more cash from EmilyAnn’s newest student loan installments. I am moving a lot of our excess cash into our LLC business banking account, which is what we’ll use to fund potential real estate investments.
Even after my investment property, I do want to keep some of my cash on the sidelines. I can imagine there being some kind of real estate dip in the next year, and I don’t want to leave myself in a position where I would have to miss out on big opportunities.
Nothing else has really changed with our assets.
Despite the rather awful economic situation, our investment accounts are still doing well.
All told, our assets add up to $372,436.68.
Liabilities – July 2020
The only significant change here is we got a nice bump of student loans again.
We’re onto the next quarter in EmilyAnn’s audiology program, so she had her next tuition bill come up. We had to take out some more loans for that, and that will continue to be the case for the next couple of years.
Thankfully, the tuition payments will get lower as EmilyAnn finishes up her program, but they will still be a significant headwind in the meantime.
All in all, our liabilities add up to $312,391.80.
My Net Worth – July 2020
Our net worth has decreased to a total of $60,044.48.
This is a rather disheartening $11,099.93 dip from the previous month.
Meanwhile, our debt ratio has increased to 83.88%.
My Next Steps
As mentioned earlier, I will continue my hunt for real estate deals.
I think that real estate will be the best way to create passive income for myself, save for any massive changes in the industry. Even though I’m itching for a deal, I have to stay patient in order to protect myself from getting burned on a bad deal.
If nothing else, this will be good practice for building discipline and focusing on my goals. It’s a matter of learning to balance my excitement to do a deal while protecting myself in the long run.
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