How Rich’s LLC Turned $30,000 into $200,000 — A Story About Brothers, Bubbles, and Prairie Dogs.

Dear Penny (and Mr. Othalafehu and Mr. Retirement Manifesto),

After my Retirement Plan post, Mr. O, specifically, asked about my LLC holdings. Happy to oblige. Here’s the story of how a $30,000 investment in farmland turned into more than $200,000. There are bunch of graphics and some stories from my neck of the woods.

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BROTHERS LLC

I’m going to start this story at the end, and then talk about the beginning, and then return full circle to the very end, like one of those annoying historical fiction novels that jumps between the past and the present. I’ll try to do this without being annoying. Go read or watch Julie and Julia for a barometer of this approach. If you can stomach it.

Careful readers of my Retirement Plan, like Mr. Manifesto, noticed that around 30% of my Net Worth is currently tied up in what we will call Brothers LLC (Limited Liability Company). Here’s my net worth pie chart, updated:

Rich’s Net Worth Pie. Click on image to enlarge.

Brothers LLC is like an investment club I’m in with my 2 brothers. More accurately, it’s me and Mrs. Rich and my brothers and their spouses. We all own our shares through our respective family living trusts (which I highly recommend for estate planning — more on this in a future post).

My brothers and I each bring unique contributions to our company.

  1. Brother 1 is a former doc and a visionary. He can afford to be a visionary because he made huge money as a doc. He owns 55%. The LLC was his idea, and most of our holdings have come through his connections.
  2. Brother 2 is a banker, he’s our numbers guy. He also makes big money, but he’s fairly conservative, as bankers can be. If he doesn’t like a deal, we usually pass. He owns 20%.
  3. Brother 3 is me. I’m the youngest. I bring creativity and comic relief and the occasional flash of insight. I own 25%.

The foundation of Brothers LLC is farmland. None of us are farmers anymore, but we farmed growing up and we come from a long line of wheat farmers. My ancestors worked the land in France before immigrating to Canada and the northern Midwest, USA. It’s here that I must introduce a seedy character named Grandpa Jack. Get it? Seedy?

That’s not his real name, but people called him that. And now, we go back.

Related: Rich’s Financial Origin Story: From Farm Boy To Theology Student To High Income Professional

GRANDPA JACK, NORTHERN MINNESOTA HILLBILLY

Grandpa Jack was a farmer who didn’t graduate from the 8th grade because, as he told the story, he was afraid of my grandmother. I didn’t get it, but I nodded when he told the story.

His whole life, he worked on the farm. Even in his 70s he would be fiddling around, fixing up old trucks, cussing about broken parts. His favorite was “Damnitalltohell” — properly said as one extended compound word. Honestly, I was afraid of the guy. Later on in high school, I told him I was going to start traveling to help people in other countries. His only question was, “When will you be back to the farm to work?” My grandma slipped me a card with $50 inside, and she wrote: “For your trip. Don’t tell Grandpa.”

Grandpa Jack had a falling out with my Dad, for various reasons, including the fact that when he retired he didn’t give Dad the land as he had promised. He made my Dad buy it in sections, full price.

In 2005, Grandpa Jack died, and true to form, he did not leave any land to my Dad, even though Dad had worked it for 40 years. Grandpa left land to his daughters (my aunts) and to a grandson (Brother 1). Other grandchildren received silver bars that Grandpa Jack had hidden in a woodpile in his backyard. I’m not kidding.

This is real farmland.

AUNTIE JUNE, NORTHERN MINNESOTA HILLBILLY

In 2008, my Auntie June, a chip off Jack’s block who had inherited 80 acres of land, was looking to sell. I have no idea why. Auntie June is a total mystery to me and I can’t believe we are related.

I just finished reading the excellent book Hillbilly Elegy (that you recommended, Penny). Grandpa Jack and Auntie June remind me of characters from that book. I’m not sure we have a good name for these people in Minnesota, rural folk who drink terrible beer and tell dirty jokes, and also shovel the sidewalk and wave to everyone they see. Imagine crossing a hillbilly with a character in the movie Fargo and stick them in Little House On The Prairie, and there you go.

Could we call them Prairie Dogs? I mean that with all respect.

Auntie June smokes like a chimney and carries dice in her purse, just in case anyone wants to gamble for quarters. And if you see Auntie June, you’re going to gamble for quarters. I’m guessing this habit has something to do with why she wanted to sell the land.

BROTHERLY VISION AND A DECISION

Like I said, Brother 1 is a visionary. After he inherited the farmland (151.5 acres), he immediately began pestering us to form a company and use the land as the basis for more investments. He could’ve done this himself, but he wanted the land to be a family asset and he also wanted to decrease his own risk. We ignored him at first.

But then he heard Auntie June was selling. So Brother 1 proposed that we pool our money to buy Auntie June’s land, and he would add it to his own land and give us a discount in the process. We would then have 231.5 acres to work with in an LLC.

The total cost to me would be $30,000 for a 20% share of the total. $30,000 was a lot of money to me in 2008. I was newly married, we were paying of Mrs. Rich’s student loans (totaling $30,000) and we were thinking of saving for a house.

We had to decide: house or LLC?

It was philosophical. Conventional wisdom says own a home. But we liked the idea of growing our investments and renting our residence. And I liked the idea of starting a family business with my brothers. So we scrapped together the money and BROTHERS LLC was born — from the ashes of Grandpa Jack’s grave and Auntie June’s cigarettes.

Chart reflects Iowa prices, but this is an example of farmland mania. Click on image to enlarge.

THE GREAT RECESSION AND THE FARMLAND BUBBLE

With my brother’s discount, our $30,000 was immediately worth $50,000. And much to our surprise, we had bought farmland just before land prices skyrocketed. In 2008, our land was worth around $1,150 per acre and rental prices were around $65 per acre, per year. A decent ROI of 5% or so. Then the Great Recession caused the Fed to lower interest rates, causing wheat and land prices to go nuts. Land prices tripled and rent prices doubled.

In 2010 and 2011, I started seeing articles about farmland in the NYT, WSJ, and USA Today. Not normal. By 2012, I was pounding the table with my brothers, telling them that we may never see prices like this again. Even my Dad, who loves to say, “God ain’t making more farmland,” was convinced to sell a section of land. That said, we didn’t want to sell ALL of it — it’s our family heritage and a unique asset. So Brothers LLC decided to sell the 80 acres we bought from Auntie June. And that’s how my $30,000 investment jumped to $186,000 in a flash.

As you can see on this chart, the value of our land went up 220% in 4 years and my investment went up right with it. In rural Minnesota, you just don’t see moves like this. It’s not New York, it’s the Prairie!

Rich’s share of the LLC from 2008-2012. Click on image to enlarge.

There was a bidding war and we got a great price. I think my profit after taxes and fees from the land sale was around $39,500. Instead of pocketing all the cash, I used $30k to purchase an additional 5% in the LLC from Brother 1. So, now I own 25%

DIVERSIFICATION AND LEVERAGE

The story of BROTHERS LLC after that is mostly a story about diversification and leverage.

Continue reading “How Rich’s LLC Turned $30,000 into $200,000 — A Story About Brothers, Bubbles, and Prairie Dogs.”

The Helicopter Parenting Paying For College FINAL SHOWDOWN (or, Part 3)

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Our beloved cousin-bloggers, Penny and Rich, have been bickering over whether or not Rich’s “legacy plan” to pay for his kids’ college is just a form of helicopter parenting.

In Part 1 of this Blogchat Debate CAGE MATCH, they discussed controlling vs. planning, manual labor, learning for the sake of learning, and the value of a degree.

In Part 2 of this awkward family debate, they discussed learning in and out of the college system, autonomy, and if someone can make these choices at age 18.

And NOW, the final showdown …

RICH is in blue, and PENNY is in red.  

COLLEGE SUPPORT AND GIVING AND RECEIVING

wouldn’t it be great for you to have received college support? you wrote eloquently about receiving food support, and your mom helping you obtain a mortgage, but why wouldn’t this also be true, even more so, of your parents or family helping you earlier in life as you’re figuring out college and career and what you want to do with your life?

This is a great question! I’ve been thinking about this for awhile, and here is why I am still not on board with funding our kids education. It comes down to indebtedness and control. Isn’t that the whole argument against government support? Because when people rely on the government for support then the government can control them?

I don’t feel particularly indebted to the government (in getting our food support), but let’s compare this to the scholarship that we get for the private school that we send our kids to. We definitely feel indebted to them there. My husband and I have talked about how after the kids move on from that school, we still plan on donating money there. 1) We like the school and it’s mission and we want to support it, and 2) We want to make up the money that they gave to us.

With this indebtedness, I also feel like I don’t have the right to have much a voice at the school. I feel grateful just that they let us be there, and, although I do agree with the majority of the stuff that the school does, I don’t feel like I would have the right to voice my opinion if I didn’t, since we’re not paying full price to be there.

And while we can be grateful for the support that we receive, I think that comparison can be made to funding our kids’ college education as well. I want to make sure that their voice is the one they’re following. I want to make sure they feel like they’re in complete control (as part of that whole autonomy thing that I talked about).

I don’t understand this at all 🙂

Do you really not understand? ///

Well, I don’t understand the diff bt your very eloquent giving and receiving point of view, and why wouldn’t that apply to you with your kids? So you’ll give to a charity so the kids in the charity can go to college or something? But not your own kids?

Continue reading “The Helicopter Parenting Paying For College FINAL SHOWDOWN (or, Part 3)”

Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!

Debt is not the legacy I’m aiming for.

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Penny,

Your food support post got me thinking about how I feel about supporting myself, i.e. self-reliance. I think it’s fair that you receive help, that’s why it’s there, no shame in that. So what I’m about to say isn’t intended to contradict the idea of food support or project anything onto your situation, it’s just my own internal perspective.

Probably my number one goal in life is to ensure that I will not need food support and that no one in my family will ever need food support, for generations to come.

I’m not saying we need to be the Vanderbilts, wealthy beyond imagination and not needing to work. I’m talking about having a firm foundation for self-reliance, autonomy, and opportunity. It’s about being ahead of the curve financially rather than digging out of extreme debt or relying on the government.

The desire I have to provide this, as a parent, is a deep core value. Very deep. As in self-determination key to happiness philosophy of life center of the earth stick it on my grave stone deep.

Can I actually build a family legacy of self-reliance for generations? I think so — or at least I can get close with the next couple generations — if I can achieve three milestones.

HOW TO BUILD A GENERATIONAL FAMILY LEGACY, IN 3 STEPS!

This sounds like a dumb how-to list but I actually believe this:

  1. Avoid the worst-case scenario via estate planning.
  2. Save for retirement.
  3. Provide for the kids’ higher education.

Step 1: Avoid the worst-case.

Immediately after the twins were born, Mrs. Rich and I took the following actions:

  • Increased our life insurance.
  • Set up an estate plan, including the following:

— Family living trust with named successor trustees; financial power of attorney; medical power of attorney; designated guardians for our children; pour-over will.

We literally sat in a conference room with an estate lawyer and 2 newborns to set up our family trust. I don’t remember anyone crying, so the kids must’ve liked what they were hearing.

Continue reading “Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!”