First, let’s talk numbers. They’re not terrible.
- February 19: Our net-worth hit an all-time high of $2,585,214.
- March 16: Less than a month later, it was down to $2,280,151, a paper loss of $305,063.
- March 30: It has since recovered to $2,353,069, down $232,145 from that all-time high.
If we were pure index investors, our numbers would be worse. The S&P 500 is down 26.9% from its all-time high and we’re only down 9%. I’m not hurting quite as bad because over half of our portfolio is in real estate. While I know that real estate will take a hit, it’s difficult to know how much.
- Elevated Living Estates (Trailer Park): Out of almost 50 spots in our property, it’s normal to have 1 or 2 renters that are late making payments every month. Surely this will go up in the coming months. We also had plans to build out four new lots. We may not proceed with that now.
- Rental home: We have a rental home here in Longmont and had big plans to Airbnb it over the summer. Now, we’ll look for stability in a longer-term renter. Before the virus showed it’s ugly little ass, home sales were on fire here. Now, not so much.
- Syndication deals: We have 7 syndication deals. in 2019, 2 of them were struggling which is quite terrifying. The thought I had back then was this: “If these deals are struggling now, what happens when the economy takes a big dump.” I’m about to find out! One positive is that when interest rates are low, cap rates compress. When cap rates compress, income-generating properties become more valuable. As long as they keep generating income…
- Coworking space: Space is a luxury for most. If members have a loss in income and are feeling pain, their membership will be one of the first expenses to be cut. So far, we’ve only lost one member, but we’ll lose more before this is over.
Because real estate is a lagging indicator and these investments are cash flow plays, our portfolio will suffer in the months to come, even if the stock market has recovered.
Charge!
We’ve been deploying dollars to the front-line as fast as they come in:
Usually, we keep a little bit of cash sitting around, but dollars under the mattress aren’t working. With Mr. Market beaten down, the dollars have more work to do.
We’re aggressively throwing money into the fire because of two beliefs:
- The economy was strong before COVID-19 seized it by the neck. The last recession was caused by flaws in the financial system while this one is caused by an external circumstance.
- COVID-19 will pass.
The market recovery time will depend on how long COVID sticks around. A prolonged infection will do a lot of damage and recovery could take years. If social distancing measures start to work soon, a fast recovery is possible.
I do believe we haven’t seen the worst of it yet.
Four Random Observations
1. More cash
Because Mindy works and her job covers basic expenses, we’ve been incredibly aggressive with our dollars. We have $0 in bonds and have always kept very little cash. Whenever we’ve made a big purchase like the coworking space or our most recent home, we’ve sold stocks to raise funds. This is how I envisioned we’d continue to invest for the rest of our lives. Pedal to the metal at all times.
Now, I’m not so sure. Having a cash buffer would provide a lot of comfort in a time like this.
2. Science is where it’s at
It’s ridiculous that here in the states, the virus has devolved into a political issue. One side is like:
And the other side:
Shouldn’t we all just listen to the scientists?
3. I still don’t understand the TP frenzy
4. Peak FIRE
Some in the FIRE community have published articles with scary, click-bait titles about how the movement is over. I have the opposite view. Times like this are when FIRE really matters.
To understand, consider a worst-case scenario where the market crashes by 80% for an extended amount of time. We’d still have enough money to live for many years. There is the possibility that I’d have to go back to work, but I would have lots of time to prepare for it. In the meantime, I wouldn’t have to worry about not being able to buy food or losing my home.
This is not the end of FIRE. This is an affirmation.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
Not bad dude, this shows the power of being well diversified. Kudos!
Dave @ Accidental FIRE recently posted…T.G.I.F. Friday: Volume 13
For now. Real estate will hurt eventually.
I heard one person explain the TP frenzy as this. If you go to the store and want to get a steak but they are out of NY Strip you just buy a sirloin instead. But most people have never lived without TP and don’t know of any easy substitute. Since it is one thing they feel like they can actually control in their lives they are doing their best to control it.
It kind of made sense to me. Except if you are spending $30+ on a scalped roll just buy a bidet attachment for your toilet instead.
That’s a good explanation.
But yeah, although I don’t have one yet, a bidet always seemed like a better way to take care of business.
I think those of us landlords have the possibility of getting hurt pretty badly. Many states are limiting evictions and police are likely not to deal with helping with evictions for a while. If your rental empire is structured as a small business may be time to look into government options. We ourselves have 2 rental properties in Boulder and the students have cleared out. Will they be returning next fall? Plus our stocks took a dump and the bond market is perilous due to all the shaky corporate debt and flight to liquidity. In other words, all types of assets other than cash are looking shaky right now. Re my tenants, who aren’t students, we’ve already proactively lowered the rent immediately 20% and made it clear we are open to going lower. Time to work with the tenants, in my opinion.
“Time to work with the tenants, in my opinion.”
I couldn’t agree more.
i’m really sitting here wondering how real estate is going to hold up with unemployment spiking. we only own our house as far as physical real estate and an old folks home REIT (OHI). the REIT is getting obliterated on price by about 50% but we’re holding on. i worry less about folks like you who aren’t leveraged to the hilt with hopes of striking it rich via airbnb. i know you didn’t ask but an ample cash cushion helps us sleep well at night in turbulent times. i’m really wired to buy the big dips and did a little of that but have really tried to balance that with cash conservation. we just dipped a toe in the water.
freddy smidlap recently posted…Learning Any Lessons From the Coronavirus Pandemic? Money Edition
Cash is definitely king in times like these. Given our current sabbatical, we have about 18 months of core living expenses in cash. Its tempting to throw some of that into the market, but given current uncertainty, we’ll sleep a little easier knowing that we wont have to crystallize any market losses in the short term.
I’m also starting to warm up my consulting muscles so that we have some cash coming in. My better half thinks this is so I can get out of home schooling….
Paul recently posted…Financial Independence Europe podcast
“My better half thinks this is so I can get out of home schooling….”
Haha. The struggle is real…
As long as your real estate isn’t significantly levered up and you can cover the mortgages out of pocket for a 4-6 months in a pinch you are going to be fine. Levered real estate uniquely has the ability to make people very wealthy, or wipe them out. This will actually be an opportunity to add to your portfolio and increase your net worth dramatically with your significant assets you have today.. I am partners in an apartment complex as well, it undoubtedly will take a significant hit short term both in delinquencies and the complex’s market value. This has the potential to be significantly worse that ’08, we might start seeing stress earlier and it going deeper.
Hold your breath, and hang on people will always need a place to live, if we marked to market real estate values it would be really ugly. This is why I’m a firm believer in 2 years of personal cash burn on hand for your own well being, keeping cash in your business so it can support itself in times like this, and very judiciously using debt. I’m guessing this time next year is when the real estate opportunities will present themselves and you will need to be ready with your dry powder. Good job mitigating your downside so far, now be prepared to take your net worth to the next level!
“Levered real estate uniquely has the ability to make people very wealthy, or wipe them out.”
Wow, that’s a great quote and so true! I worry about some folks I know who are highly leveraged and didn’t have good numbers to begin with ($1,500/month rent on a place that cost $330,000?!??).
Yeah, we’re really conservative and since Mindy has a job at a company that does better in hard times, we’re not worried either.
“This will actually be an opportunity to add to your portfolio and increase your net worth dramatically with the significant assets you have today.”
We’re on the hunt and getting the dry powder ready now. You?
Good to hear you are positioned properly! We are here as well, sitting on way too much cash that will get deployed over the next 18 months (maybe sooner the way this is unfolding). Swoop in, purchase for cash, no contingencies, offer to close in 7 days. You need to know your market very well and be on the constant prowl, but this is how you get an exaggerated rate of return. In 5 years you will writing about how index investing is not for building next level wealth, but a place to store a portion of your wealth after you have it. If I’m a betting man I’d say you’ll be approaching a $6M net worth. Happy hunting, but I hope this isn’t the opportunity for us I think it will be for our country’s sake.
At the end of February, I was down 10%. I’ll do the numbers for March tomorrow, Not looking forward to it since I’m pretty much 100% into index funds but I’ve got lots of time to sit back and not touch it.
Gwen @ Fiery Millennials recently posted…Monthly Status Report: February 2020
The numbers won’t be pretty. Hell, they may suck for the rest of the year and maybe beyond. But, this will pass and you’ll be wealthier for it. Eventually.
I know its been a while, but hope you and the family are doing well Carl during these weird times! Sounds like it.
“Having a cash buffer would provide a lot of comfort in a time like this.” – This hits home as last August I was planning on leaving my job once this Feb came around. I squirreled up a bunch of a cash with the plan of staying on the sidelines to take care of the Personal Pan Pizza for a while. Long story short, I quit in Feb…two days before I left the Mrs got laid off (weeks before COVID-19 became more serious here)…and we’ve been flexing our frugality muscles ever since. I think that’s called being accidental FI, right? Haha! Too bad I don’t have a blog as there’s way more to tell 🙂
Danny! Great to hear from you! I hope you and yours are doing well as well!
This virus sucks. It would be so much more fun to be having pizza with you in NYC. Another time…
Accidental FIRE? Forced FIRE? Oof.
I live in a bubble. We have excess money. Mindy has a good job and BiggerPockets does better in hard times. I’m surrounded by other middle-aged, fire people. All of this sometimes causes me to lose perspective.
In any case, I hope you sail through this thing OK.
The pursuit of FI has definitely helped with the anxiety. Even before the mandated shelter in place, we were able to have the mister take off from work (he works with tourist from all over the world). He went back to work for 1 day, and was laid off- welp…time to just have him stay home with the kids. Our living expenses fit well within my salary, and we’ve a large cash cushion. Running out of TP, though, so that’s one of the worries (also running out of flour , for some reason there’s a run on the stores for that too). Also, what do people think we did for TP before it was invented?
Bidets will have their moment soon!
I have a friend/coworker that works in examining toilet patent applications. He would likely agree. They can be pretty fancy- some spray perfume and play music while you do your business. Others sense which person walks in the room, and light up and automatically put the seat up or down. (BTW, I looked it up…TP was invented circa 1920)
I would strongly encourage you to reconsider your position on cash.
I’m fat FIRE for over 20 years and I keep a ridiculous amount of cash … with direct and indirect government payments counted as cash, I can live my normal lifestyle for about 5 years without touching any other asset. This might be too much caution but this is my 4th financial crash (maybe 5th depending on how you count). I have definitely left some upside on the table but my alternative has been many years of comfort knowing I don’t have the worries of so many others.
Certainly 2 years of expense coverage and maybe 3 as the minimum. Bad stuff happens and it is nice to be able to wait it out. In the 2008/2009 crash many investment sectors didn’t show signs of life before 2012. Alternatively, a sudden expense like a medical event can force liquidation of depressed value savings.
And much of the money held in cash should be in FDIC or other government accounts. Money Markets are supposed to be safe but they are not guaranteed.
When the stock market falls, people lose their jobs. Other investments drop in value or have difficulty as well (like a small business). A forced sale of a home could result in an additional loss. A bad chain of events fall on very few people … but it does happen. I’ve seen it. A pile of cash gives you the time to think and recover. It really takes the stress out. It makes the path to FIRE a bit longer but having years of less worry is more than worth it.
But, you can also make the argument that if you were 100% in stocks, your nest egg would be far bigger, so selling stocks at a depressed price may not matter as much (see Jeremy’s comment below).
This is something I go back and forth on.
re: cash
I’ve had basically zero cash for the past 8 years.
Had I held cash, I would now have the opportunity to buy stock at 2018 prices instead of 2012 prices (about 75% more expensive than my actual purchase price.)
Enjoy the ride!
Jeremy recently posted…The CARES Act
Nice one.
Holding cash still make me queasy. If Mindy wasn’t working and we were close to our FIRE number, I’d have at least a year of cash. Since Mindy works and we have twice our number, I’m not that concerned…
Nice spending. We keep on humming!
I’ve read so many blog posts on what people would do during a crisis including all kind of backtests that showed that all would be fine, so I don’t really get the panic. I’m just dollar cost-averaging, even a bit at a higher rate now due some available funds from my war chest. I’m sure that the market will do better 10 years from now.
No worries unless you or your family get it.
I don’t like that it could be mild or you could die and be of any age. That adds a new element.
If we could all get it and get a mild case I wouldn’t worry. That isn’t how it works.
Hopefully none of us have to find that out.
What is a syndication deal?
Just ran the numbers and we’re down about 12% through the end of the first quarter. Not a big individual stock picker but I got a nice deal last week on Microsoft ($135 a share) and took Cathleen’s advice and bought some Etsy at $37). Also doing the regular monthly max outs on retirement accounts and considering doing some Roth conversions while the markets are down. We have a few years of cash that is still making 1.5% (down from 2.25%) with Synchrony and still getting 2% cash back using the Fidelity credit card that we pay off monthly. Weird that those are our highest percentage money earners this year to date. I’m feeling better than ever about being such a cheap skate in my real estate search the past couple of years (meaning I didn’t buy any after underbidding on half a dozen opportunities), And with the latest non-eviction rules, I might hold off a bit longer. As to early retirement, I was 2 years away from retiring in January and now I’m 1 year and 9 months away. This, too, shall pass. And, if anything, this has told me how much more important things outside of work are to me.
Hey all, wife and I have been self-quarantined for the past two weeks after coming down with COVID-19 symptoms. We have been fortunate to have contracted relatively mild cases. Since we didn’t have respiratory distress we did not go to the hospital and are not candidates for confirmatory testing. I do want everyone to know about a tell tale symptom that is not getting a ton of press. The virus comes with the nice added bonus of loss of smell for many. For some it may be one of the few symptoms they get. My loss of smell was complete and has not returned yet, despite today being the first day I have been otherwise symptom free. Wife is further along in recovery and is slowly getting her sense of smell back. With the lack of testing available, just wanted to pass that along. Even without respiratory distress it was an ass kicker.
Our brush with it does help put short-term financial woes into perspective. Like Carl, we are pretty evenly spit between real estate and equities, so we’re only down about 10% as of today. Due to a confluence of events, we have also been sitting on an inordinate amount of cash the past 6 months and procrastination in deploying it has been to our benefit. To be fair, part of the procrastination (or lack of urgency) in putting it to use has been the high stock prices. I’ve done some buying and will do more in the coming days and weeks, as I expect we see another dip before we see any further recovery.
We have two rentals. One is rented until November. The other is up June 1. Renters indicated they want to stay and have not lost their jobs. I’m keeping the rent steady, but let them know I will work with them in the short term if one of them loses their job/hours. Great tenants are hard enough to find in good times, so I agree with those preaching some flexibility and concessions, as needed, to keep them during these difficult times.
I was actively looking for a 3rd rental before this hit and actually put offers in on a couple places. I’m glad they didn’t go through. The search has been put on hold for now to see how this shakes out. Like the stock market, I suspect there will be some bargain prices..
Best of luck to all on your physical, mental and financial health. Stay calm and FIRE on!
Hi Mr 1500. I agree with your observations.
But I disagree with second part of “The last recession was caused by flaws in the financial system while this one is caused by an external circumstance”.
We again have big flaws in financial system, and COVID19 only exposed them, I.m afraid that this one will be larger than 2008.
There is nice article, written by economist Nebojsa Katic, which shares more details on this perspective:
https://nkatic.wordpress.com/2020/03/31/what-happens-after-the-pandemic-published-in-serbian-daily-politika-on-25-3-2020/
I’ve been re-evaluating my cash position as well. Not drastically, but I’ve always thought large cash emergency funds were a bit over the top — and I still think overly excessive ones are a bit much, but I’ve been increasing them a touch. I’ve had my hours and pay cut back in response to the Coronavirus and the industry I work in is on shaky ground right now. It’s made me think about future options and making sure I have a little more cash on hand than usual to put out further the day when I would have to withdraw from my investments. I would hate to have to withdraw right now, for example.
On a positive note, I’ve been able to get more work done on my bathroom, and have been doing my best to make the most of having extra time, both in projects I can get done and in enjoying things I didn’t have as much time for.
BC | FrugalWheels recently posted…FrugalWheels Almanac: March Madness 2020
Just catching up on blog reading… 🙂
My net worth is actually only down about 8%, the bulk of it from my 401k where I had been sitting in mostly conservative investments (concerned about over valuation of the market) until the end of last year when I started to dip my toe back in. I ended up buying quite a few individuals stocks that seemed undervalued or impacted by other factors at the time relative to the rest of the market. Thinking that I could eke out what I could from the remaining bull market. I compromised with holding about half in SPY to go along with my basket of equities containing the likes of BA, DAL, DB, and SBUX. It hasn’t been a fun ride watching that.
In our other retirement accounts I was more sane. I held a split of 50/50 VTSAX and VBTLX. I’ve since changed that to 80/20 VTSAX and will likely go all in soon with 100% VTSAX. My real estate investments are in a holding pattern while dealing with some previous vacancies and likely short term loss of rents. At best, I’ll be at break even from a cash flow stand point there. Fortunately, I’m still employed during the crisis, albeit WFH (fine by me!). I’ve changed my 401k contribution to the max of 50% of my pay check. All of it going into a 2065 Vanguard target date fund. I should be fully maxed ($26k) by early next month.
Lesson learned (yet again!): You can’t time the market. But if you try to do so, don’t jack around with individual stocks. Only attempt market timing strictly by changing allocation between stock and bond index funds depending concern over market sentiment of being overbought or oversold.
Money has many uses, it is important that after using, you can earn to offset it or not!