From Debt Free to Owing More than $480K

First of all, I apologize that it is a little bit of click bait. As a seeker of FIRE (Financial Independence and Retire Early), I am always cautious about my personal finances. No, I didn’t lose my shirt. It is actually quite the opposite. 

Anyways, it has been more than a year since I posted my last article. I thought it is a good time to update everyone on my FIRE journey.

Became Debt Free in 2019

If you read my previous articles, you probably know that I have been warning about a stock market bubble since 2017. Back then, I decided to keep my portfolio mostly in cash or bond. However, the market continued to climb and I missed quite a bit of potential return. Luckily, the business of my employer continued to do exceptionally well. I got more shares from RSU (restricted share units) and ESPP (Employee Stock Purchase Plan) every now and then. To avoid potential losses, I sold all the shares every few months. This way, I took the emotions out of the trading. 

In May last year, I amassed enough cash to pay off the mortgage. Since the balance was not high, the interest was not large enough to write off through itemized deduction. On the other hand, the interest rate from savings account was much lower than the mortgage interest rate. On top of that, stocks were even more overvalued in 2019 than they were in 2017. After careful thinking, my wife and I decided to pay off all the debt.

Relieved but still depressed

I can’t describe the feeling of being debt free after having mortgages for two decades. Even today, I still feel the excitement of handing the big payoff check to the cashier. At that moment, I felt like the sky was brighter, the air was warmer. 

Suddenly, I felt that retirement was within reach. I couldn’t wait for that to happen. I crunched the numbers and found that I still have a long way to go before reaching financial independence. If I follow the 4% rule, I need to accumulate at least 25 times of my annual expenses in my portfolio before reaching FI. Since I am more conservative, I was planning to continue to work until I saved 33 times my annual expenses. I may have to work another two decades and that completely shattered my dream of FIRE. 

Another reason for me to feel depressed at that time even being debt free was my career. I have been working in the same company for almost a decade. Despite it being pretty smooth and financially rewarding, I didn’t feel excited going to work on the same thing day in and day out. From the outside, I looked happy because I became debt free, but deep down, I was depressed.

Letting go

I decided to let go of my old job. I decided to give up all my unvested RSUs. I decided to let go of my seniority and my management position. I decided to embrace the unknown. I started a new job at another company in early Summer last year! Being debt free gave me the courage to try something new. I figured that I will probably need to work another two decades. Why not try something new? So I switched.

How did I owe more than $480K in all a sudden?

As you may already have observed, I am very conservative. I don’t gamble. I live well within my means. How did I end up owing more than $480K after being debt free?

Actually, it wasn’t as bad as you thought. I have always been interested in real estatement investments. I had the opportunity to bid on a 4-plex in 2010-2011. However, for whatever reason, I ended up not buying it. After achieving the monumental goal of owning our home debt free, my next goal was to become a landlord finally. 

Having a fully paid off rental property will definitely give me a steady stream of income during my retirement. Also, the real estate market peaked in 2018 in the San Francisco Bay Area.  Property price came down quite a bit in some areas although they were still very unaffordable. Some experts warned that we are in a real estate bubble. 

It was quite nerve wracking to go into real estatement investment in 2019. But, I figured out that it is ok to do so as long as I am in the game in the long run. Even if there will be a significant drop in the price in the near future, it will recover eventually. The nice thing about rental property is that the income is a good hedge against inflation. On top of that, if I buy the property in the upcoming neighbourhood, the long term price appreciation should be nice.

So, we decided to buy. But our networth was completely tied to our home and retirement accounts. Cashing out from 401K is a big no-no. Luckily, the interest rate was very low. My wife and I did a cash-out refinance to pay for investment property. In addition, we don’t want to keep paying mortgages in our retirement years, so we opted for a 15-years fixed loan. By the time we retire, the rental property would be paid off. We could decide to keep it or sell it at that time. 

All in all, 2019 was a very exciting year. I achieved two of my life long goals: owning our home debt free (even for just a few months) and owning our rental property. I also started my new job at another company. 

A lot had happened since we bought the rental property. As you know, a lot of us, my family included, are still living in a very uncertain time, but I am grateful for being healthy, having stable income and a new job. I will post more about my journey in 2020 and my thoughts. Stay tuned. More importantly, stay safe and healthy.

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