The last numbers for the month of July are finally in, and I have updated my monthly net worth spreadsheet. The results are spectacular!
I finally got my taxes completed, meaning I have paid off the IRS for my early 401K withdrawal. The giant liability I’ve been carrying for nine months is now zeroed out. Instead of my early 401K withdrawal costing me 50%, it ended up only costing me about 37%. Cue the happy feet.
My networth has growth by 10% from just last month. Total growth since last August when I began tracking is at 80%. Some of this is tied to estimated values of my rental properties, so it should be taken with a grain of salt. It will probably take a few years before those values settle down to something closer to reality. And you don’t REALLY know until you sell, right? But it’s good enough for now.
All my real estate holdings are settled now that I’m done moving into our new home and selling off the old one. I’m not buying any more real estate for probably five years at least. Next year’s tax bill will be MUCH smaller and also easier to produce. Now that I’m established with my new CPA things should be smooth sailing.
The bills to Uncle Sam have been paid and the outcome is fantastic. Instead of fretting over whether or not my 401K will grow or shrink each month or worrying about the high costs of those funds, I am looking at an annual incoming cash flow of about 25% of my investment capital. Remember, I only had to put 20-25% down on the rental properties. So based on those rents combined with the monthly distributions from VNR, I have a pretty solid, consistent cash flow coming in. Divide that by the total money I invested, and that’s where you get 25%.
It’s true that probably 70% of that cash flow is used to service debt. But that’s okay. First of all, the debt is fixed and finite; rents and distributions are not. Based on history, the odds are pretty good they will both rise at some point. The cost for getting my money free from the clutches of that 401K have been paid. With this type of cash flow, I should probably recover the losses in just a few years.
The key here is that with a stable cash flow positive income, I can now wait for the market to speak. When property values rise high sometime in the future, I can sell bits of property and re-leverage things. I also have a huge boon of unused depreciation starting to accumulate that will help me reduce if not eliminate the tax bill down the road. That should allow me to reinvest a maximum amount of cash and continue to build wealth much better and more reliably than mutual funds wrapped in a 401K ever could.
You can check out the chart below to get a rough estimate if the time frame it will take me to recover the losses and leave the old 401K plan in the dust.