How I became financially independent

When I was a kid I always wondered why we exist and why we die, and become terrified by the fact that we’re mortal (Please don’t try to convert me, many missionaries and preachers did, but they can’t answer one question: if god created everything, who or what created god? I can’t imagine void or limitless so I need solid proof before believing in anything. For things I don’t understand, I just try not to think about it). As years went by, I just accepted my fate, but if I can’t live forever, at least I have to enjoy my life to the fullest possible!

Why I wanted to retire early

I think the previous paragraph more or less answered the question. Working for others is often accompanied with stress, just think how many times we had the desire to be able to say “I Quit”. It feels so good to be financially independent, be able to do what you wanted to do, without having to worry about your pay check.

I’m always determined to do only the things I want to do, whenever possible, that is. My dad once told me I should choose a major in computer science or finance since I’m interested in both. However, I don’t like spending endless time debugging and always have to learn new things, so decided I don’t want to be a professional programmer. On the other hand, I also don’t like to be a salesman as financial advisers often are, and I don’t want to learn all the advanced economic theories and jargons. After all, if those theories are of much use, we wouldn’t have so many financial crisis and all the financial majors should be millionaires.

The reason I chose to major in biochemistry is because I want to understand how my body functions and how nature functions. I also had a little hope that I may be able to find a way to become immortal. Of course I know this is extremely unlikely, but I also have a backup plan. I’m confident that I can at least find a job, and if I don’t like it, I can always quit when I have accumulated enough to be financially independent, which based on my financial knowledge back then is doable even with a mediocre postdoc salary.

How I became financially independent by 40

Things didn’t quite work out as planned. Although I enjoyed the learning part, by the time I finished Bachelors, I found out there were not many career options, which forced me to take a scholarship and continued on to a PhD degree. In the meantime, my financial plan seemed to be on track. I was able to find a part time job, and in year 2000 the housing market in Sydney took a downturn after the Olympics and the government rolled out the first time home buyer credit. I took advantage of it and bought a studio for $110k ($100k after the credit was applied), and was fortunate enough to be approved a mortgage based on the scholarship and part time job income. I was able to sell it for a reasonable profit and moved on to my second property a couple of years later, but unfortunately I made a series of mistakes later on in the stock market front and lost $50k, which wiped out all the hard earned profit through the years. The PhD degree is equally frustrating as it took me 5 whole years to complete vs the standard 3 years.

Thank heavens bad luck is only a small part in my life, and after graduation I was fortunate enough to find a postdoc position in a private research institution in the USA. I say fortunate because in this institution I didn’t have to apply for grant money, which is a very stressful task. I also had a salary in the mid $40k, while still mediocre compared to other professions, was about $5-10k more than the normal postdoc salary. Things again went on track, since I’m still single I lived a frugal life, and was able to save half of my salary. This time I invested mainly in mutual funds, and avoided real estate because the market was too high and I wasn’t certain that I will stay. Meanwhile I kept my Sydney property and rented it out, which was just enough to cover mortgage payments and repairs.

Then came the great recession, which wiped out more than half of my portfolio worth. I have to admit I was nervous and frustrated, but apart from these feelings I was also excited, because based on my knowledge there was tremendous value in both the stock and real estate market waiting for me to harvest. The only caveat: I had no more liquidity.

At that time, I wasn’t aware of Interactive brokers or it’s portfolio margin option (see my trading strategy post to see why this is important). All the other margin lending options are both too high in the interest rate, and require 50% margin, which is too risky, any significant downturn would quickly result in a margin call. On the other hand, the hardest hit sector is real estate, and therefore present the highest opportunity for quick profit. Better still, real estates only require 20% margin for the best interest rate, and as long as you don’t default on the monthly payment, you won’t be exposed to any price movement risks. However, I still have to fork out the 20% down payment. I don’t want to sell my stocks, because of rule 7 to avoid selling at a loss during a broad market downturn.

Luckily, the Bush government rolled out the first time home-buyer credit and my Sydney property still held on to the gains. Although the credit is not as good as the one rolled out later as I still have to pay it back, it’s the only credit available at the time and I don’t have a crystal ball to predict a better deal was just around the corner. I took the credit and together with some savings and mortgage, I bought a condo for $66k at the end of 2008. It turned out not to be the best investment as later it became impossible to finance condos so potential buyers were all cash buyers, thus limiting price appreciation. I know the market might not have bottomed, but I figured the price is low enough to guarantee a come back, and I needed a new place to stay as my rent went up, by renting out 2 rooms (I converted the dining area to a room) I’d be paying less than the room I was renting at the time. Meanwhile, I sold my Sydney property and readied A$70k (US$56k at that time) for any future investment opportunities.

As I didn’t see any good real estate opportunities in 2009, I gradually added to my stock positions with the proceeds and my salary. This strategy paid off as by mid 2010 I recouped all the losses. By 2010, the real estate market was so depressed that in some areas it’s possible to buy 3 bedroom townhouses for less than $100k. I looked at many properties and decided on one located in Anacostia in southeast DC, which costed $70k. Although now I have funds to pay in cash, I still financed 80% because of rule 3 to borrow as much as I can. This is by far the most successful property I’ve bought, and now (Jul 2015) it’s worth more than $260k. I also did a cash out refinance on it to buy a 4 bedroom townhouse in Maryland in 2011 for 80k, this is the best example of growing wealth with other people’s money.

All the good things happened to me after the great recession, I met my wife in 2010, and we went on to buy another 5 properties, including 2 primary residences, which we sold at significant profits in succession. In 2013 & 2014, we also had 2 lovely sons in succession! Life is full of fun ever since.

In contrast, my career life was not fun at all. Although I was full of ideas, I wasn’t good at actually carrying out the experiments because I’m lazy and unorganized, so I didn’t get promoted at all. The institution kept on burning money and I was laid off in 2012. I successfully found another postdoc position, but this time I had to apply for grant money. It stressed me out so much, and I told myself I have to retire. Even before I was laid off at the first job, our net worth was nearly $1 million already, which is more than enough for me to retire since my wife is still working. However, our borrowing potential is not fully utilized yet. Therefore, I kept working until we bought our current home, and finally sent in my resignation letter at the end of 2013.

It feels so relaxed to be financially independent, and it also made financial sense to quit my job. I wasn’t making a lot of money as a postdoc, and I was struggling with time both working and investing. We also had one kid and was expecting one, to send both of them to daycare would probably cost more than my after tax paycheck.

Another reason I was confident to retire is because I finally developed a viable trading strategy that gave predictable result, and found out about Interactive Broker’s low cost structure and portfolio margin option that enable me to borrow up to 5x my portfolio value. This way, when I borrow conservatively, it’s unlikely to trigger a margin call.

Recently, I’ve been researching a better place for retirement. My criteria is: it has to be in the US, because I’m on greencard and don’t intend to apply for citizenship. It has to be close to excellent Chinese food, this basically limit the choices to around Los Angeles, San Francisco, New York, Vancouver in Canada, and possibly Houston. Preferably, it should have mild weather, which eliminated Houston and New York, and I also like to be close to a marina so I can buy a boat. Unfortunately, any such homes around the remaining cities would cost north of $2 million! But upon deeper research, a small border town less than an hour drive to Vancouver stood out. I recently bought a house in Birch Bay, Washington (featured in the header photo). It’s really the perfect gated retirement community. My house is next to a man made lake, I can launch my canoe into it from my back yard. It has snow mountain view of Mt Baker, and marina view to Birch Bay and the San Juan islands. It’s a bird paradise with encounters of the bald eagles and blue herons, and we can sail out to watch whales near San Juan islands. There’re just so much outdoor activities to do around there, and we can always sail out to Richmond BC for a weekend filled with good food, window shopping and fun activities. The best part, the 3000+ sqft house is only $450k with 1% property tax!