It has been 19 months since I said goodbye to traditional employment. Since that time we have taken two amazing roadtrips, and get to spend far more time as a family. We also have learned a ton about ourselves as a result of the transition. Now that the weather is turning a bit more pleasant, we start or end most days with a family trip to a park. Usually, the Little Man plays on a playground until it is time to watch the sunset. Some days, if the weather is particularly nice…..we’ll take the Little Man to preschool and then Mrs. IS and I will go for a long walk along the waterfront, or take a picnic lunch to the beach. (Often we see critters like the ones below.) In short, life is pretty darn good.
When I’m not chasing the Little Man…….I spend most of my time volunteering at church, reading/learning about all sorts of things, and doing a little bit of work. I haven’t spent a lot of time talking about work in the past, but that will change today. Wait a minute, work?! Yes we work, but the difference is that we work on projects that we are passionate about….taking on the opportunities that we enjoy. One of the things that I learned when I quit, almost immediately actually, is that I’m not the kind of person who can sit around and do nothing. I need projects, I need to stay active. While I’ve always known this to some degree, I didn’t realize how badly I needed to be engaged……until I had a bunch of time on my hands.
I don’t just value myself based on the money I make…..haha, which is good……but I found that I have a less than desirable habit of valuing myself based on what I accomplish. On a trip this usually means what I’ve seen. As a homeowner, it was usually about the renovations I’ve completed. As a worker, it’s about projects built or pay received. (There it is, that money thing again.) The fact is that we don’t have enough money to retire completely, but what we do have is enough money to build the flexible life we want. Now that we’ve established that we don’t have what some would call “F-You money”, what do I do for work….and how many hours do I put in.
Paid work currently takes two forms for me. On the short term side of things, I consult on various engineering and real estate development activities. Sometimes this takes the form of helping to permit construction activities through a local government agency, or monitoring the progress of some construction under way. More often than not though, it involves some property owner who wants my opinions on how to handle an engineering or development situation. Last weekend was a perfect example. A property owner had purchased a piece of property early in the summer, and wanted to talk about the water ponding on the property during the wet season. After speaking to him for a few minutes on the phone, I suggested he give me a few hundred bucks to research his area and meet me onsite. He loved the idea, especially since large engineering firms wouldn’t be bothered with such work……and it would cost thousands if they were willing to consult.
I spent about an hour researching his property online. Looking at the soils maps of the area. Browsing recent construction permits. Checking out the floodplain and topographic data (in this case Lidar). You should note that until 3 years ago, this research would have taken me about 4 hours of physically driving to offices and looking through files. The internet has sure made researching more efficient. Then I spent an hour in the field with the owner, answering questions and making suggestions. It felt great to help out, and be paid a great hourly rate.
These little consulting gigs pay a great hourly rate, but more importantly they are flexible and fit easily into our schedule. A couple inquiries came in while we were out in Colorado a few weeks ago. I was able to get started on one remotely, and delay the other until I returned. That is work that fits our schedule. Would you rather work 45 hours per week at $33 per hour, or a few hours per week at 4-5x as much?
The other “job” is the development work I do with my business partner. While I am paid immediately for my consulting work, payouts from the development projects can take well over a year. The project outlined below will take 15-18 months. A huge percentage of these projects never fully materialize either, but the payouts when they do are outstanding. There are three keys to these projects, being their location…..structure…..and price. I’ve outlined a current project below, but used an example site plan.
This example is a good representation of a current deal, but here are the specifics. The project consists of about 80 townhomes and 2 commercial outparcels on a 6 lane highway. Not surprisingly, the corner is extremely valuable…..and was developed decades ago. My partner found and completed several residential deals before we joined forces, but we are mostly targeting these mixed projects now. You’ll see why is a minute.
One of my early mentors was a real estate developer, and he taught me several important lessons. The most important of these lessons was that the deal structure and terms exceedingly important, even more so than the price. In this case we were able to structure the deal so that our deposits were relatively small ($30k), and we have enough time in the contract to perform the rezoning and permitting. My experience as a civil engineer representing developers really comes in handy here. We are taking a vacant pasture through the rezoning and permitting phases, and selling to a builder who will turn it into a bunch of townhomes…. while we keep a couple of retail outparcels. Our risk mostly comes in the form of development costs, and the contract is structured so that we don’t have to buy the property if we are unsuccessful in permitting it for these particular uses.
As I mentioned above, we are now targeting this style of project. Why? For the cash flow. We have each been involved in other projects where we only earned commission, or got a cut of the profit when the projects were sold. The payouts were great, especially for our employer at the time, but much of that money was eaten up by taxes and costs. To make matters worse, we always had to be chasing the next deal.
Instead we decided to work for ourselves and build future sources of cashflow. We are unlocking value with our experience and customer relationships, but what flexible independence allowed me to do….is play the long game. I mentioned before that these projects take one or two years to start paying out, and I couldn’t wait that long if I needed to work for a paycheck every two weeks.
So back to this deal. We have priced our contract with the current land owner so that the cost we are paying, and our development costs, are largely covered when we sell townhomes to a builder. We structured the timing of this deal such that we minimized our risk. If all goes as planned, we will simultaneously sell the townhome section off at the same time we buy the overall property. That will leave us with a low cost basis in the two commercial outparcels. The value of those outparcels depends on which tenant wants to be located there, but either way they are valuable. Between now and closing, we’ll decide if we are going to put tenants on the outparcels and keep them for the cash flow……or sell them off because Cap Rates are so low. It’s good to have options!
How would you spend your time if you didn’t have to work a full time job? Let me know if there are any questions about this type of real estate deal.