Finances. How we afforded 10 years "off."
25 September 2023
How did we pull off a ten-year vacation? Three years cruising aboard a 50' catamaran from Florida to New Zealand followed by seven more there? Where did we get the money and how did we keep "afloat."
This is one of the most common questions asked on Cruising Forums. My wife has written a book about our adventures entitled "Sailing Ohana," and she is receiving the same question. The following is my attempt to give the detailed description of how we "did it."
The first thought many have is that we started with money. We started with less than zero, literally.
I came from very modest means. My father was a Civil Engineer with the City of New York, my mother a homemaker until the city's financial troubles of 1975 made it necessary for her to return to work in banking. My father said, "we were always broke but never poor." I grew up "fixing things" with dad and sailing, always sailing.
Becky describes most of my story in her book. The one thing I will add is that sailing and then racing around the Hudson River and then Long Island Sound introduced me to wealth like I had never seen. The yacht clubs and the homes of my friends who also crewed. I kept asking the question "how." A few years after high school I found myself in Vallejo California in the Coast Guard and one of my friends, Steve Newby (can't believe I remember his name) was looking for an off-base apartment.
With not much else to do I rode along with him to look at places. At one the land lady drove up to meet us in her Mercedes. She walked us into the basic unit and showed us around. I started asking questions about her business, the buildings, how it works. At one point she took the cigarette from her lips, sighed and looked me straight in the eye and said "kid, people will always need three things: food.....clothing.....housing. I choose housing." I never forgot that.
A few years went by. I went to college after the Coast Guard (in at 17, out at 21,) managed to buy a little duplex in Hobe Sound Florida on the wrong side of US1 and "lived for free." I managed to get a First Class FCC license which got me working at Radio stations as an engineer (hated it,) Captain's License (loved it), worked as a yacht broker and helped start a little firm (first taste of business,) did lots of multi level marketing BS, and generally kept trying to figure out how my sailing friends parents learned how to "make money," enough to be "free."
The one thing out of all that worked? The duplex in Hobe Sound Florida on the wrong side of A1A. It was the only building my parents ever gave me any money towards, 7,500.00. That was the down payment for the VA loan. I paid 77,000 for that little building and lived there with tenants next door and two roommates. My goal was to "live for free" and I did. After 3 years I sold that little duplex for 120,000, paid off the loan and had about 40,000 in my pocket. With that I committed to finishing my undergraduate in Geography and International Affairs at Florida State University and a Masters in Business at the Maine Maritime Academy. I was still interested in figuring out how to make it.
In 1988 I sat down a wrote out EVERYTHING I wanted to in this life, everything. That was followed with a yearly "how much can you do in one year" chart I created. One of those goals was "the freedom to travel at will." I am sharing this because it is not just the mechanics of how you do it, it is the spirit of how you do it. I didn't know at the time but do now, "where you point your mind is where you go." I just read over and noticed one goal was to have "more than 300.00 in checking." 😊 (see photos for picture of that chart)
This was just before I bought the duplex. I was yacht brokering and funny line in that picture is "try to sell a boat" followed by "floss." I was young. I did this exercise each year up to 1996. I had met Becky in 1992 and together we had started building the life I had imagined so long ago and she as well. Her story in full is best read in her words, buy her book 😊
After graduating from Maine in 92 with the MBA I was lost. At 27 years old I was past the prime as most entry level corporate training programs looked for younger business grads. I interviewed with SeaLand, Puerto Rico Marine Management and Mitsui OSK lines. I was told this fairly bluntly on two occasions.
My resume was all over the map, I didn't fit in the traditional world and I was struggling with what to do next. That 40K was long gone and I had racked up student loans and credit card debt. My only asset was a 1982 Mazda 626. My friend from high school, an officer in the Air Force, had moved to Alaska in 1988, I had driven up with him that year. I called him to brainstorm what to do next and he said "come up here, I have started buying real estate and it is incredible! I have a job for you, a place to live and a girl!
The job was being a handy man for him for 10.00 an hour, the place was a walk in closet with a twin bed and the girl I am still with to this day.
That's the set up. Here comes the execution of building the "machine."
I flew to Alaska in November of 1992 and checked out the scene. I met Becky on that first trip, again her story details our story. Suffice it to say the minute I laid eyes on her I said to myself "she will be mine." I will add that your partner is everything when it come to this cruising lifestyle. If yours is not into it at all think really long and hard before trying to force a round peg into a square hole. Becky fit. She was an Alaskan woman through and through and up for any adventure. Must add she is tough as nails, patient, determined, focused and genuine. These and more are all qualities needed to live out the reality, not the YouTube version of life at sea. These are also traits in a partner that are key to succeeding in real estate investing.
I had my freshly minted MBA and Armand had a rough set of books for his real estate holdings. At the time I think he had about twenty units. I asked if I could look over his books and he dropped them in my lap.
Having fallen for plenty of "get rich quick" schemes I dove in. The numbers were incredible. I took the time to write up a simple spreadsheet for each building based on a Schedule E and calculated the real cash flow for each. After that looked at the purchase price of each, the amount needed to fix them up and their value after.
What did I find? For example, he had bought a 4 plex for 110,000.00. It needed nominal work to get it rented. Basically a good cleaning, service the boiler, paint the units, maybe carpet and a few appliances, 15K max. He did ALL the work himself. He put everything on 15 year loans with downpayments around 8-10K. His mortgage payments and utilities would come in somewhere around 1,400/month. Rents for the 2 bedroom units would be around 700.00/unit or 2,800.00. See it? That is around 1,400.00 a month in cash flow not including amortization on the loan and they were only 15 year loans! He was making a real 7K/month and growing while still working his full-time job at the base. The minute his term was over he was out of the Air Force. I sat back in that chair and remembered what that landlady had said years before along with my little duplex experience and right then I choose real estate.
Yes, luck plays into life and Anchorage Alaska in the early 90's was in the toilet. Oil had dried up, the economy was in tatters and every third house was owned by a bank. Something else was odd up here as well, rents stayed up. There are several reasons. Alaska is a transient state and many come up to "give it a try." Some stay, most last 2-3 winters and leave. They rent. The military bases were still there, there were not many entrepreneurial types running around and the inventory of housing was constrained by the geography. Anchorage is basically and 10-mile x 10-mile box with Cook Inlet on one side and the Chugach Mountains on the other. As properties aged out there was not new development outwards to replace them. Add on to that the banks wanted OUT and that meant if you had a pulse and some spunk you could just about talk your way into a four plex and I did, lots of them.
Can you do it today? Yes. Is it harder? Yes. Can I tell you how to do it? Yes. Follow 1happylandlord on YouTube and TikTok for more. Shameless plug over. You really can though if you have the drive and vision.
Remember "the freedom to travel at will?" That was still in the back of my mind. Armand had paid for a charter in the Bahamas and he paid for me to go down to be the captain. He was dating Becky's sister and invited Becky as well. We were not dating at the time, again details in her book, but the prospect of an adventure was good enough for both of us. She had never done something like this before and I was anxious to impress her. On that 10-day trip she and I crossed the friend line, she was hooked on sailing and I was hooked on her (I think she was hooked on me as well.) This is important as again the person you choose to do this with has to be all in and she was.
Back in Alaska I put my nose down and with no money had to figure out a way to buy my first building. I was making the 10.00 and hour with Armand and learning everything there was to learn about getting buildings up and running. That was not going to cut it.
So here is how I got the first four plex followed by a 12 plex, you have been very patient. At the end of this post I will share what I would have done differently, don't skip ahead.
I had no money but I knew people that did. That is key number 1, access to capital. What I did have was the ability to do an FHA first time home buyer loan. I racked my brain and reached out to those I thought might be willing to take a chance. First my family. In my case my father was VERY conservative, money-wise, and had a low tolerance for risk. That was a hard "no." Then friends. One in particular, Gary, I knew from my yacht broker days, and he had been very successful in the tech world. I called him up and talked him into coming up to Alaska from Florida to see what I was up to and to have a vacation of sorts.
For five days Gary and I drove around and looked at buildings. Armand gave him the tour of his buildings, explained the numbers and what was involved. Why didn't Armand invest in me? He was growing as well and needed his capital for his projects. Gary left willing to take a chance. Our "deal" was he would put up the down payment and closing costs, I would do all the work, we would split cash flow 50/50, when it came time to sell he would receive his initial investment back first then we would split proceeds after that 50/50.
With that I hit the streets and found a four plex for 120,000, we bought it under those terms. It was NOT EASY. You will hit road blocks and I hit plenty but there is a way through most of the time. My sales training over the years came in very handy and I would recommend anyone going into business to take the time to learn, for lack of a better work, people. I had listened to thousands of hours of tapes from Dale Carnegie to Zig Ziglar and everyone in between. We did a second deal shortly thereafter on a 12 plex. Those 16 units got me started, if you think about it was effectively 8 but that was enough.
I continued working for Armand and lived very frugally. Dave Ramsey has a saying, "live like no one else so you can live like no one else." I drove a beat-up old Mazda 323 with no floorboards and anemic heat, slept on a mattress I found in a dumpster (it was actually in pretty good shape,) and worked hard.
Next step houses.
There was a little cabin with a large shop behind it that came on the market for 20,000 owner finance. (editing note: you may be thinking there are zero deals like that today. I still find them, the numbers are different but the ratios and principles are the same, stick with me.) I knew it was a good deal and I knew it would have a lot of offers. If only I could offer cash. I contacted Gary again and he agreed to loan me 25,000 at 15% interest. With that I offered 21,000 for the cabin and got it. Was my first solo deal and there is a story behind that, but I'll save it. What happened bottom line was I fixed it up, rented the cabin to the Buck family and rented the shop separately to a welder/fabricator. As soon as all that was done, it took about 2 months of hard work, I went down to our local bank and refinanced. This is classic BRRR (Buy, rehab, rent, refinance) which at the time I didn't even know was a thing. I will all one letter to the end, "H." Hold.
The property was appraised at 90,000.00 and they were willing to do a commercial loan at 80% LTV (loan to value.) I left that closing with 72,000.00 in my pocket, that was in the fall of 1993, ten months after touching down in Alaska. At that point I had the 16 units with Gary and now the little cabin on Pine Street and the most valuable asset, a model.
Did I pay Gary back the 25,000? No. He liked the interest and I needed the capital. I took that 72K and bought 3 more houses in similar price ranges that needed a ton of work. After those with similar outcomes I started buying duplexes, four plexes, 6 plexes..........anything I could get me hands on. By 1996, the year Becky and I married, I was up to around 70 units and growing. This was an 18 hour a day job which I loved so it didn't feel like work. This is important. I do not believe you can hire out everything from rehab to maintenance to management which we will get to next. Also, I believe you are simply storying energy. Working like I was, basically doing 20 years of work compressed into 10, gave us the 10 we needed to take off which is the point of this whole article.
What about property management?
Remember the paragraph about sales experience? Tenant management is essentially sales. I naturally like people and respect customers, which tenants are. I learned early on that if you treat folks as customers honest and affable people will do a lot to help you if you help them. These properties were all in low to moderate income neighborhoods which I would recommend focusing on. These folks tend to stay for long periods of time, respect hard work and are willing to overlook imperfect flooring in exchange for being treated well. It is a working formula.
I set bookkeeping up that was simple and dedicated one single day a week, "paperwork Monday." I still use this system to this day. I still use the same spread sheet I wrote for Armand 30+ years ago. Real Estate is not complicated. You have the same single transaction once a month, for the same product to the same customer. Today we own several businesses, a bar and a coffee shop and those are a whole different animal.
Being organized is key. Each building is an event, each has a file and a ledger. All very simple. I modeled my spreadsheet after the Schedule E from the IRS which made tax time fairly simple. Today I use Quickbooks for the businesses but have not made that jump for the real estate, assuming it is just as easy. Frankly accounting for properties can be done on a green ledger sheet. Bottom line? Do not over think it.
Becky and I were married on St. John USVI in the spring of 98. Two years prior I had upgraded my living situation from the downstairs at Armand's house to one unit in the 12 plex that Gary and I owned and yes, I paid rent so Gary received his half. Becky reluctantly moved in prior to us tying the knot and she made that dated apartment a home.
From 92 to 96 there was another story going on that goes along with how we set up everything to work while we were able to travel. "The freedom to travel at will" does not happen by accident and one might think "how could you ever leave if you have so many responsibilities?" Truth is you could not if you did not take the time to figure out how to manage everything from afar.
Armand loved sailing as much as I did and we were both determined to figure out a way to do both business, and boats. He had left the Air Force and was growing as fast as I was. If you choose this route, building a group of friends doing the same in invaluable. We could share stories, brainstorm problems, let each other know about deals and generally support each other. In our little group there were about five of us who would meet for lunch almost daily then go out onto the battlefield refreshed. You also are building a network where all can cover the others.
Through my yacht broker connections I got wind of a Huges Northstar 40 monohull for sale in St. Augustine Florida and 40K would buy it. I did not have that kind of cash sitting around but he did. We bought what was to become "Scarlett" and the "brownie point" system was born.
Basically we each agreed to cover the others on ground duties while one was away. We came up with a ratio of "brownie points" relative to the number of units each of us had. The points were assigned a value, I think 100/point and could be exchanged for work or money. Over the four years we owned Scarlett we each sailed about 4-6 months a year, usually in 2-3 month chunks, The rule was leave the boat better than you found it and business better that you found it. Trust is key here of course. This system allowed each of us to fine tune our management and enjoy life. The added benefit was the boat was always somewhere new in the Caribbean and when one or the other arrived would always find some "improvement" that made it even more fun.
By 1997 Becky and I were thinking family and it was time to sell Scarlett and focus on a real home and children. Scarlett sold and it was a bitter sweet event, I remember walking away together from her in Soper's Hole with a tear in my eye. Those were magic years. One other very important event happened that made our decision to sell half of everything in 2001 and take off. You can find that story here, "the best advice." https://www.sailblogs.com/member/sailingohana/396190
Madison was born in 1998, Kelsey in 2001. We built the house, the business had grown to 120 units, the biggest addition being a 40 unit complex in Palmer Alaska. In the spirit of developing the systems to travel we had taken off to Hawaii for 6 months to test out management systems from afar, learned a lot and then a cross country RV trip. It was following the road trip where Becky brought up the idea of really taking off. The "best advice" was spend time with your children while they were young. We were doing well materially but something was missing and it was time.
Once the decision was made to buy a catamaran I stepped into gear and sold 70 of our units. We paid the capital gains tax, paid off the rest of the units including the 40 plex, bought "Ohana" and just did it. That is where the money came from. The 40 plex came with a manager, we had built a strong rolodex (remember those?) with tradesman, suppliers, insurance, and finance pros.
Now to the mechanics of how that part went together.
All the cash from the sales went to pay off buildings, there was little left over although the remaining buildings were cash flowing well. At first we wanted a 47 Catana which were around 500,000K at the time. Always a value buyer we kept looking. I still had a lot of contacts in the broker world and one of them, Don Buckles, showed us a 50' custom Dutch built cat that could be had for 330,000K. She needed some upgrades, but not many, and was a proven ocean going design. We decided to finance her and ended up with a payment of 2,200/month. After ten magic years she sold for 250K in New Zealand and when I look back at the cost per month it was negligible.
This is her as we found her and after some upgrades. (See Pictures)
The internet was new then but worked. We had a manager we employed who loved their position and watched out for our investments. I would talk with him regularly and I still did the final books each month. Banking was available online along with autopay for most utilities. It was rare that we could not find a wifi spot even back them. By today's standards it was painfully slow but it worked. The only time I was out of contact for an extended period were the long pacific passages but even then we had iridium and could send and receive emails.
That is how it worked, for a decade. Every Monday I would look over the books and do what had to be done. The folks in Alaska did the best they could and we supported them generously. Our living expenses were minimal so over the course of the three years we were actively cruising we were actually saving money. That changed once we hit New Zealand of course. Sadly Dave, the original manager, passed away soon after we arrived in Opua. I flew back to the US the next day and over the course of a month found a new manager and the systems we had in place she easily stepped into. This is the value of good systems.
The next question is how did we do it in NZ? Immigration, living expenses, afford a home and raise children.
Immigration: Soon after arriving we both knew this would be a place to settle. New Zealand had three main paths to entry as memory serves. Skilled Migrant, Work and Business. I just checked the Immigration Website and there appears now be many ways to enter the country. We went the skilled migrant route which was a point system based primarily on education and age. The business visa was an option and friends tried that. Basically you buy your way in, I forget the amount but it was substantial and you had to actually start a business. The work visa required actually working and having an employer sponsor you. We had friends that went that route as well. Skilled migrant was somewhat flexible and at the time we were in our early 40's and late 30's, I had the master's degree and Becky a bachelors.
The first two years were a kind of waiting period. We elected not to hire an immigration agent and went about preparing all the documents ourselves. I visited the immigration office in Auckland and noticed how many of the applications looked sitting on the agents desk. We made sure ours was spiral bound with a clean cover which I think made a difference. This is not a small task, putting together the application. By the time we were finished it was about 2 inches thick. They want to see evidence of a couple's "enduring relationship." We had pictures of us dating back to 1992 (this was around 2006 when we started the process.) Tax returns, bank statements, their forms, proof of education, etc. This all culminated with an interview in Auckland. There they wanted to hear about our commitment to the country, what clubs and activities we were involved with, where our daughters went to school, if we spoke English (yes that was a thing) etc. It was short and kind of funny as the agent basically had a checklist she had to go though and to be honest her mandarin was probably better than her English.
A few weeks after that we received our indefinite permanent returning resident visas. We would be eligible for citizenship with a passport a few years later but this was just about the same. From that point forward we could come and go as we pleased.
At this same time NZ was offering a four year tax holiday on world wide income to encourage skilled immigration. Our main income was from the States and at the time we took advantage of this not really knowing how much of a burden this would become when the four years ended. We were in New Zealand for 7 years total. The first two were on a tourist visa sort of, I cannot recall exactly but tax was not required on overseas income. This was followed by the four year tax holiday. In year 7 the reality of how expensive it is to live and pay taxes on overseas income hit home. We quickly realized the cost of soft socialism and in our situation we would both of had to work full time just to pay the tax on our US income. At the same time the girls were reaching high school age for Madison and middle school for Kelsey. Good expat friends advised us we had to decide. If we stayed for Madison to finish high school we would likely stay forever. It was good advice we took to heart. It was time to go.
How did we afford the house in Opua and living in general?
After arriving in 2005 we lived aboard Ohana in Opua. A few months in we decided it was time to move ashore. Remember the properties in Alaska had been paid off in 2002 and were sitting there doing their thing. They generated enough cash flow to cover our expenses but the truth is it is more expensive to manage from afar without being on the ground to handle the myriad of issues that arise. Turnovers take longer and are not done as well, mechanical repairs require plumbers and electricians, you get the idea.
We refinanced the 40 plex that spring pulling out 500K if memory serves. The payment was easily serviced buy the rents and this became our seed money for NZ. We purchased the home on the cliff for 700K financed with ANZ bank. There was enough left over to remodel and still have a nest egg to live on for a few years.
For work over those years Becky started a cycling jersey business, I tried real estate investing but it was a non starter, totally different environment and not investor friendly, and I took the time to become a NZ Launch Master, their equivalent of a 100 ton Master. We moved to Auckland in 2008 and there I worked as a relief captain on one of the Auckland Harbor Ferrys.
The house sold at that same time, and we lived on the boat for a short period of time before renting a beautiful house in Takapuna for 2,000/month which was the deal of the century. Real Estate in Auckland was through the roof.
Was it all the best financial decision? No way. Would we do it again? Absolutely. Net worth does not correlate with happiness. Had we stayed in Alaska and continued on the path we were on we would be worth a multiple of what we are now but likely we would have been miserable and who knows where that story would have ended.
We returned to Alaska in the spring of 2012. We could have moved anywhere, and I was gunning for Florida where I was basically from for my adult years. Becky was open to it, and we looked around at homes and schools. It just didn't feel right and at a tense lunch one day in Stuart I asked why everyone was so glum and quiet. The dam burst and all three said in unison "we want to move back to Alaska."
We moved back.
It worked out great, the girls enjoyed American school, I stepped right back into my work and there was a lot of it. Becky was able to focus on the girls, her goals, and her parents. The buildings were showing their wear but after a year of owner attention were back up to standards I could live with. Opportunities began to present themselves but that is another story, the goal of this one was to share with you how we did it.
What would I do differently if I was to start over from scratch?
If I had a do over I would have started basically the same but as soon as I was able I would have been looking for large multifamily buildings, 20 units or better. There is a sweet spot between 5-100 units where the big boys are not that interested and the small guys struggle with financing. 20 units or more in one building is paradoxically easier to manage than 5 four plexes. You can have one unit with your onsite manager and if a married couple a maintenance man. They take mental ownership of the property and the residents which frees you up to find the next deal. The forty plex was an eye opener for me.
The other thing is I would have looked more closely at are commercial over residential with the potential to be involved in the business as well. Straight residential real estate is solid but there are few ways to increase cash flow as you are limited by the rental market. Owning the commercial space AND the business gives you built in diversity and the potential on the business side to grow as far as you can.
We bought a building with 8 rental units above and bar below in 2016. We had no intention of being bar owners but as time went by and we realized how hard it was to find a responsible bar owner tenant we decided to open it ourselves. We brought on an equity partner to run the day to day operations and I oversee the business operations. The bar pays rent along with the units above and it generates significant revenue on its own.
If you have the desire you can make it happen. It will not be easy, nothing worthwhile is, but it is possible. This is how we did it and are doing it. Seasons change. Presently we are transitioning out of most of our holdings in Anchorage. I'm turning 60 this year and it is time for the next adventures. We still have the 40 plex and a number of other small buildings in Palmer Alaska operating under the same model they have for the last 20 years. We intend to hold onto them for 10 more years and take off again aboard Ohana 3. We hope to see you out there!
You can find more tips and thoughts at 1happylandlord on YouTube and TikTok 😉