DINKs to a family of 4 in a heartbeat

About MoneySecrets: MoneySecrets offers a peek into the financial lives of our fellow Kiwis. The story below was written using pseudonyms to remain anonymous. When commenting, please remember that the writer has laid bare their financial life, which can be a scary thing to do. Please be kind, and enjoy!

INTRODUCTION

Hi, I’m Jeremy. I’m 36 years old and my partner Amanda is 33. We live in Tauranga and we’re both working professionals. I work in agriculture and Amanda works in the food industry. Our careers have been good to us. We have both worked hard over the past 15 odd years climbing the corporate ladder and increasing our income etc etc.

I have always been interested in property, particularly building. After finishing university, I moved back home and got my first job. Within the first year I had my $35,000 deposit (just over 10%) and I had a small house built for me on a subdivided back section. At that point I couldn’t afford to live in it so rented it out and remained at home with my parents for one further year. I was very privileged to be able to have that option available to help me get into the market.

After the tenants moved out, I moved in with flatmates to help service the mortgage. After a few years in this house, I wanted to build another house but this time I wanted to project manage the build rather than buy a ‘turnkey’. At this point I was able to keep my original home as a rental and build myself a new house. Again, needing flatmates to help pay the mortgage.

This process repeated itself again into another home however I needed to sell this time to move on. It was around this point that I met Amanda. She moved in and a few years later we wanted to build again so the property was 50/50 ownership. I was getting quite good at project managing the build process while maintaining a full-time job at this point. As the years floated by, we were obviously doing well for ourselves especially with the housing market being so buoyant. We never really focused solely on our finances or had strict budgets, but we knew we were well in control and getting ahead as we are naturally frugal people. We don’t want for more. We enjoy the little things. Growing our own vegetables at home etc. Going out spending just isn’t us. We would rather spend weekends working on the house or some form of project that’s adding value to something we own than lying on the beach all day.

I then spotted what you would consider ‘our dream home’ it was a 1ha block of land with nice views that we could build the McMansion on. The numbers stacked up, so we proceeded with selling our home (going renting for 18 months with a friend) and then moving up to the dream home once completed. Story over, right?

Wrong! After about a year of living in the new home Amanda and I had decided now was the time to have children and I struggle sitting around and not having a project going on, so I got together with my dad, and we started a spec home building company and started a build and sell project and I also started a new build for a rental for us as well.

Amanda fell pregnant quite quickly and boom! twins were on the way! So, I now had new-born twins and 2 houses in the middle of being built while juggling a full-time job at the same time. I like being busy but wow! This was next level. Every spare minute I had was either on site at the houses or being with the twins. It was tough especially on Amanda, but we knew what the outcome at the end was. We had amazing help from the grandparents and wouldn’t have been able to do it without them.

Throughout all this we’ve also invested in the share market and built a considerable portfolio of approximately 600k mainly based on individual shares.

Over the last 5 years or so I have been reading a lot of FIRE (financial Independence Retire Early) blogs like Mr Money Mustache. We were already on this path and following a lot of the principals without even knowing it. Things like living below your means, saving a large portion of your income and investing for the long term. The one thing we weren’t doing was building passive income. Everything we were doing was building equity but not a lot of income-producing assets. It had all culminated into our personal home being worth nearly 4m. This is far too much money to have in your personal home so the next stage in our journey is to change that….

FINANCIAL GOALS

If you follow the FIRE movement, you will know how much they dislike property. A lot of this community is based out of the USA so I take it with a grain of salt. Property is 100% the reason we’re in the position that we’re in today. The main form of investing in the FIRE community is to invest in low fee ETFs like the US500 or Vanguard Total World Index and I intend to do more of this and move away from individual shares as time goes by.

Now we have children (and don’t plan on any more) our goal is to be able to have the freedom to spend as much time as possible with them as they grow. I don’t want to be the dad that spends every waking minute at work and travelling the country being away from home and then when I am at home being not present due to thinking about work. Depending on what happens with Covid we also intend to spend a year overseas with them before they turn 5.

Money just buys you time, but I need our money working for us and right now I don’t believe it is.

I’ve considered us financially independent for over 5 years now. I don’t want to go into too much detail as there are hundreds of blogs out there all about this and I implore you to spend some time looking into FIRE, (only good can come from it), but the FIRE movement talks a lot about the 4% rule which states once you have 25x your annual expenses invested you are financially free as you can withdraw 4% of your portfolio each year and never run out of money.

I have a slightly different take on this. I follow more of a capital preservation model whereby I want my net worth to continue to increase over the years and don’t want to deplete any of the capital we have invested which is the typical way. I only want to utilise the dividends from the portfolio.

There are many forms of FIRE - lean FIRE, Barista FIRE, Coast FIRE, or Fat FIRE. Which all take a slightly skewed approach to FIRE and how their post-retirement lives look. The closest I can relate to is Fat FIRE.

My goal is to “retire” within the next 1-2 years. And I say retire in quotation marks as I clearly won’t be sitting around doing nothing all day. To do this I have devised a plan to rearrange our equity into income producing assets that will produce approximately $100,000 per annum from rental income and dividends as well as affording me the ability to run my own business building houses.

People who don’t understand the FIRE movement will argue black and blue that I’m not retiring because you’re just starting a business and going out on your own rather than working for someone else. The thing is it's on my terms. One year I might build and sell a house another year I might not. I don’t have to do any of this out of necessity. I want to…

The plan involves selling our current home and downgrading to a smaller house releasing a little over 3m in equity to invest elsewhere to produce an income.

I have the two rentals already. Some of this will be used to pay down debt on them. I will build a third new rental giving me two brand new homes that with the new tax laws I will be able to continue to deduct the interest as an expense. I will sell my original rental shortly after as this no longer stacks up for me. It’s an older place, requiring more and more maintenance, no interest deductibility, and the rental yield is much lower than what I can generate from a new property.

Here's the end result I'm aiming for:

• Paid off personal home worth around 1.3-1.4m.

• 2 x paid off rentals worth approximately 2.2m generating 80k gross income per annum.

• A share portfolio of approximately 1.2m mainly based on ETFs generating 35-40k gross income per annum.

• Around $1.2m in cash for future projects.

And if I can leave you with 9 simple rules that I've found helpful from JL Collins – The Simple Path to Wealth:

1. Avoid fiscally irresponsible people. Never marry one or otherwise give them access to your money.

2. Avoid money managers, it’s your money and no one will care for it better than you.

3. Avoid debt.

4. Save a portion of every dollar you get.

5. The greater the percentage of your income you save and invest, the sooner you’ll have FU money. Try 50% with no debt. This is perfectly doable.

6. Put your money into low fee ETFs such as Vanguard Total Stock Market.

7. Realise the market and the value of your shares will sometimes dramatically drop. People all around you will panic and scream sell sell sell. Just ignore this, even better buy more.

8. When you can live off the dividends that your investments provide, you are financially free.

9. The less you need the freer you are.

And remember – The ultimate goal is to be happy. Never lose sight of this.

Assets

My assets are mostly property as you can see. Proud is a bit of an understatement. I’ve built up from a $300k home all the way up to a 4m home in 15 years by working my ass off as well as building up an investment property portfolio of two rentals and a decent sized share portfolio along the way.

I have done a lot of the work myself on each house and every time I’ve built up significant capital in terms of what each property has cost me to what it is worth once completed. That’s ignoring any capital gains, and this has been a big part of our success. Taking the risk while others were saying the property market is going to crash. Doing my due diligence and pushing ahead with each project – knowing my numbers and being realistic. Working through all the problems that come with building a house (and there have been plenty!) and ensuring the projects continue and come in on budget or below while also building a successful career in my full-time job.

The future looks bright and I am excited what the next chapter will bring when I have an extra 40+ hours a week available!

Kiwi Saver

I have been on a KiwiSaver contribution holiday for the last 8 or so years. My current contributions go into my work Super Scheme instead which is matched 5% for 5% and my KiwiSaver balance from my previous employment currently sits in Simplicity's Growth Fund (I've combined the balance of both above). Each year I contribute the $1042.86 to Simplicity to make sure I get the government contribution. Amanda has her KiwiSaver with ANZ in their growth fund.

My share investing journey

I’ve been investing in shares since 2013. Or is it speculating since 2013. I always wanted to own shares but really didn’t have a clue what I was doing. I tend to use Jarden to buy and sell my shares but the options in NZ are not great and their fees are a joke compared to what you get in the likes of Australia, but I haven’t found anything that’s much better around.

I started off with owning NZ shares only in the likes of Mercury, Genesis, Air NZ, Auckland Airport, Summerset. Just the basics and not huge amounts either. In the last few years, I went pretty heavy into the Australian market and was playing with some pretty risky startup companies. Some I’ve lost everything, and others have returned multiples. It’s a wild ride that’s for sure. But at the end of the day, I’m only just beating the benchmark. There’s a lot of volatility with sometimes 10-20% swings in a day on some of them. I’m comfortable with these events but I’m just at the point where I don’t think its worth it for all the efforts of continuously educating yourself on the market and the individual companies that you’re invested in. There’s also a lot of double-ups in our portfolio, for example owning the likes of NZG as well as owning FPH and A2M which are the two top shares in the NZG. So I'll continue to sell down the individual shares I have left and put the funds back into the ETFs to match the allocation I am looking for.

I find it a lot easier to pick an ETF allocation that suits your risk level and just continue to contribute regularly for the long term as the majority of your portfolio and have a bit of a play on the side with some high-risk companies if you’re that way inclined.

For the children I have them invested in Superlife's My Future Fund. It’s in their individual names but I am in control until they are 18-21 years old when I can hand it over. I have their allocation similar to mine with a mix of US500, ASX200, and NZX50.

Debt

300k is on our home, and the remainder is on our rentals.

I’ve been reasonably cautious with debt along the way. I certainly wasn’t one of the ones doing 10% deposits and leveraging ourselves into 10 investment properties like a lot of others have on interest-only repayments. I don’t think I’ve ever really worried about where the next repayment is going to come from or been stressed we were in over our heads. I’ve always set my borrowing on a maximum 20-year term, only ever made weekly repayments, and every time my interest rates were renewed and reduced, I continued to pay the same amount as I had on the higher interest rate.

Income

We have both had successful corporate careers. My salary is $140k currently and I get good bonuses. Amanda was similar before taking maternity leave and now works 3 days a week.

I’ve always had a side hustle of some sort to bring in extra cash. Recently it has been the building company with dad and with the crazy property market increases of late this has made us a lot of money. I have a big tax bill to pay shortly! I would never expect this sort of return again. It’s not right and the market needs to flatten out for an extended period of time from here on in.

Expenses

If I can successfully implement my "retirement" plan I would need to pick up some additional expenses such as health insurance for the family which is currently covered by work.

I believe I have a lot of fat in my calculations as you never know what will happen in the future. Children are expensive I’m told….

Remaining income

With our remaining income we continue to dollar cost average $700 a month directly into ETFs for ourselves and $100 for each of the children. Still pretty low compared to what residual income we have. I will ramp this up further down the track when I have executed the plan. I also continue to pay down debt on our investment properties.

Inviting feedback from readers

I hope you all enjoyed the read. It’s quite a different experience when you have to put it all down on paper. I’m sure I’ve missed quite a bit but ask away if there are any gaps in the story you want clarification on.

A couple of questions:

• Does anyone have any further thoughts on our diversification? Particularly the amount we have in property.

• How do you get exposure to other investment opportunities?

• Should I be worried about not having any bonds in the mix?