I think about this a lot - I made the jump from salaried worker to self-employed programmer/freelancer/contractor/consultant (depending on how you look at it). But I'm doing enterprise-level architectural programming. It's not very amenable to productizing, so I'm basically stuck being paid for my time.
What that means is that if I want to have a long-term high-security relationship with a couple of key clients, I basically hit a ceiling in hourly rate (a good rate, but slightly below what your general multi-person agency will charge) and I've been at that ceiling for a couple of years now - nowhere close to $250k .
It appears the way to transition out is to bump the rate up significantly so it doesn't appear you're trying to compete with agencies - maybe around $200/hour or 6k-8k/week. But the problem with that is that the long-term relationships can go out the window. They only want to bring you in for shorter periods of time, and you have to hustle more. So the marginal benefit isn't awesome. And I really like my clients and I hate hustling, so I stick with where I'm at. This higher rate I've had for the last 2-3 years is nice and all, but practically what it means is that I'm projected to be able to retire at age 65 instead of age 75. It's not a dramatic difference in lifestyle.
So instead, I've just been trying to amass a larger emergency fund outside of maxing my retirement savings every year. And then I'll do something with it... what, I don't know.
I know, first-world problems, but it seems that now that I finally have a bit of a nest egg, the income-maximizing move would be to use it to invest in one of these other careers the forbes article mentions. But what? Nest egg money isn't really the limiting factor behind a retail operation, it's the actual retail product idea, and I don't really think that way. What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not. So I'm sort of in this state of perpetual mulling. I wonder if I could just find a talented-but-poor subcontractor, get my own general contractor license, and handle all the business and project management parts (which I love) despite knowing nothing about construction.
As a consultant, there are three ways to raise your income: work more hours, raise your rate, or add leverage (i.e. hire). It pays to take a few walks and think about the structural differences between each option. For instance, working more hours is not sustainable, has a low ceiling, has painful non-monetary costs (especially with a family), and doesn't get easier as you progress in your career. But there may be things you can do to increase your billable hours without increasing your working hours, e.g. by selling retainer or support agreements. Even still, as you approach 100% utilization you're making asymptotic improvements.
Re raising your rate, I suspect that once you break through the ceiling for general-purpose skilled developers ($100-150/hr?) into the "specialist" range ($200-500/hr), your billable hours actually drop, because to justify that rate you need to spend more time giving talks, publishing papers, updating/promoting a blog, contributing to open source, prospecting for clients, etc. I'm personally contemplating making the jump to specialist work, but I don't have real experience there.
So I don't know if this helps you, but I feel like we're in a similar situation, and to me this line of thinking at least helps clarify the territory.
Assuming you're American, if you work remotely and have no dependents, you could consider moving abroad to a country with lower cost of living. (Easier to cut expenses than increase revenue.)
You may qualify for the Foreign Earned Income Exclusion (~$96k) if all of your work is performed while you're physically outside the U.S.
I've been researching this topic religiously for the last 9 days and have contacted companies to help me structure everything. I'll write a detailed article when everything is said and done.
As far as Real Estate investing goes, find something that has good bones (layout, HVAC, plumbing, electrical, etc.) and bad aesthetics (overgrown shrubs, needs paint, etc.). Make a low-ball offer, hire someone to fix the aesthetics, and execute a 1031 Exchange to move up the ladder.
Stop charging for your time and start charging for the value you are providing to the business.
If you implement a system that will increase revenues, you should be charging based on that value. Just because you're implementing some back-end system does not mean you're not having an impact on the bottom line. Sounds like you've gotten stuck into thinking your old clients are your friends. Do you not have the confidence to pursue / win new clients if you're 'key' clients disappear?
First of all, f### "first-world problems" when it comes to something like this. It's personal and it's your life. You only get to perceive one run at this one.
I posted a few things in Patrick's thread that I won't repeat here[1] regarding the move from a simple hourly rate to the ~$1m+ range.
The thing I would work on in your case are your basic assumptions. I would try to get past the "long-term high-security relationship."
It's good to have long term relationships but they are never going to be highly secure. Instead, work on maximizing your value and adjust your income accordingly. If you do think of relationships, think of it in terms of your reputation and your network. If you went to a decent school, use the alumni network. If you worked at a company that has a "former employees" network, use that. Keep in touch with people you've worked well with, even if it's just watching them on LinkedIn and congratulating them on a move or helping them find a new job/gig/whatever.
It's something that can be tough to crack the first time, but you're in a good position already. "Enterprise-level architectural programming" is nerdalinga for "Enterprise Architect," "Consulting CTO," etc.
Getting the first big "gig" is usually a matter of timing your availability with opportunities (i.e., what unlucky people call "luck"). Reach out through your network and have people recommend you. The first strategic position you take will probably be similar to what you have now, but at least you can put your shingle out as "Consulting Enterprise Architect".
Then you should work on getting a couple marquee clients to put on your NASCAR slide. They don't have to be massive, but they should be respected companies. I targeted the top of the Internet Retailer 500 and established build, launch, replatforming, infrastructure, scaling, and security relationships with enough > $1b/year sites that new clients ask about what "leaders" do in the industry. Enterprise work is mostly about minimizing perceived risk.
It's good if you can build partnerships with platform vendors. For example, Oracle PS don't really like to touch projects below a certain size, so I get a lot of semi-qualified leads in the ~$1m range that I can knock out in about four months with a few fellow consultants/friends. If you bring in the vendor to one of your clients, they'll usually keep in touch and mention prospective clients even if they're not going to go out on a limb and drop your name on the desk. I wouldn't knock myself out on this, though – just make sure you are the one making the introduction and are present at the pitch meeting.
Also, you'll need to be solid when talking at the C-level. Get your presentation skills down, have a suit or ten made (cough go to Anderson & Sheppard once and Shanghai soon after), and gain confidence that you know what you're doing.
You're going to have to get out of your comfort zone a little bit. I actually loved interviewing (both sides) so the sales process (which is generally just letting someone validate claims made by a referring member of the network) is not unpleasant.
I'll also tell you the biggest secret of "consulting": find out what people are complaining about. Write that down on slide one. Find out (or know) how people resolved the top three problems on that slide and put them on slide two. Make those slides beautiful and extremely succinct, so you're conversing, making eye contact, and reading body language. Make it look easy.
One last thing: You should become aware of the product market in this area. EAI is a massive opportunity and even if you just build a toolset leveraging Mule/Camel/ActiveMQ/etc., that's a product you can license to clients. I don't often advise this, but saying there's no productization opportunity leads me to recommend one of the Enterprise Integration Patterns books.
Damn, this is really good advice. I find that as I get more senior, I have less immediate peers that set an example of what sort of next steps are possible, so these are good bits of advice to read.
Yes, the last year has included a lot of prototype experimentation with stuff like EIP (spring integration), amqp (rabbit), jax-ws (cxf mostly), Drools. I can see how pulling the thread on these could eventually turn into a product, but in the meantime it's really just been more about making the recommendation and then doing the implementation. I feel like I'd need a handful of more successful implementations before I can call myself the Consulting Enterprise Architect, but it's getting there.
Real estate is a good way for lay people to gain wealth with not much effort. You don't need to be a handy man to get into the game, but it helps if you can do the repair work if needed. At the very least know what it takes to get things done and repaired so that when you hire people to do the work, you know the ballpark figure and the amount of work involved.
Real estate investment is good to get into because its cycle is long and very predictable. Just follow the trend. Once the housing price goes one way, it takes huge amount of effort for the market to turn it around. We are just bottoming out and starting on a upward trend now.
Read up on the topics and take some classes if needed. Community colleges have night classes that cover lots of topics. You don't need to agent related topics, just the economics and investment parts.
Real estate investment is a leverage game and as such, it's advisable to be well capitalized so that you can weather the up and down of the market. A down market can last 6 to 8 years.
Why not simply keep doing what you are doing and buy dividend stocks with your savings? There is no rule that you have to start your own business to become a business owner...
Yeah, that's in the mix - it just feels like a mental leap, as for years my only savings have been in retirement funds, where I've focused on mutual funds. Plus I have a bit of a problem with the market just because it seems like however deep you get into the abyss of researching stocks, behaviors, fundamentals, etc - there will always be the finance firms who will have access to better information.
On top of that, the media is full of inaccurate stats of how good an investment the stock market is, long-term. They'll say things like 8% net (after inflation is accounted for). I did my own study(1) and over my investing lifetime it's been around 3.5 - 4%. That makes a huge difference in all the sample spreadsheets out there - for someone who maxes out on the Roth since age 18, that's basically the difference between being able to retire at 62 with $2 million, and having to continue working at age 62 with savings of $500k. I guess it seems like there's more control in investing it in my own business.
(1) - Looked at dates/amounts of my entire retirement contribution history, pretended I bought S&P-500 index fund each of those dates, backtested using Yahoo's "Adjusted Close", ran an APY/XIRR calculation, subtracted avg yearly inflation over same rough time period.
The 8% real return is the arithmetic average over the last 80+ years. It's somewhat useful for predicting the expected return over a one-year period. However, what you need for retirement planning and what the IRR formula gives you is the geometric average, which takes into account compounding. The historical real return was only about 6% measured as a geometric average, and there are some reasons to think that it will be lower in the future.
When you say better information, what do you mean? The actual basic fundamentals of each company are publicly available and required to be accurate. There's a lot in the interpretation, but at least on that front your actual information is on a reasonably level playing field.
I agree that getting into technical / behavior based trading is a much bigger hurdle due to all the specialized data and algorithms that go into it.
A lot of the really attractive dividend stocks have become substantially less attractive over the last 6 months due to the market rally. There were quite a few stocks giving 5-6% with good prospects of increasing in value as well 6 months ago, but I can't say the same now.
"What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not."
You don't need to do the fixing yourself... My advice would be to read 3+1 Plan book (http://en.wikipedia.org/wiki/The_3%2B1_Plan). You can get it for free in PDF from the author if you sing up for one of his websites.
Looks like the 3+1 Plan is basically to buy a property, pay interest only, wait for it to appreciate, remortgage, use proceeds to buy another property.
I think I'm looking for more detail from a hacker perspective - how to get access to RMLS systems, mine the data, what kind of criteria to look for for best arbitrage, what kind of moves you can make if you have $x in capital, etc.
Here's my experience. If you don't have a lot time and not into construction and not a lot of money, don't bother going into foreclosure, flipping, or short term project. People going to court house auction bring in a million dollar cash to bid on foreclosures. They can keep bidding a house up until you run out of your reserve. It's very difficult to outbid them and still make a profitable flip.
For casual investor, the best approach is just buy and hold from the regular market, utilizing long term leverage to gain the profit. You want to buy into a trend and RE has very long trend. A rising tide lifts all boats. Doesn't matter which house you buy. It will go up in price in a uptrend. Also established neighborhood is easier to predict up and down. The whole neighborhood will go up in union. New development might turn out good or might turn out bad, depending on the people moving in.
For RMLS, the regular listings have a lot of information. The regular websites like Trulia or Ziprealty are good. Insider knowledge will not give much advantage because RE is a heavily regulated industry and once a house is listed, the agent has a duty to get the best price.
You're thinking about a scenario where you are carrying a hammer, and your looking for nails.
Real Estate is all about information. That information isn't in the MLS system.
Examples: How long is the old farmer by the interstate going to be around? What neighborhoods have weak neighborhood associations who won't protest my hacking a 2 family into a 4 family to maximize section-8 revenue?
my friend has been doing this for a few years but he's saying that opportunities are drying up with the housing recovery. Also he is a handiman so his margins are higher than the average person yet he's still seeing fewer opportunities.
Also keep in mind that brokers take ~6% on both the purchase and the sale of a property, which means that the property has to increases in value substantially for you to be able to effectively "flip" it. (rates are negotiable obviously, and I think you can get a certification to be able to handle some things yourself instead of getting outside service)
It sounds like you see yourself limited by time, not ability or even money. Since you're a programmer you probably have the intuition to seek out other good programmers. So what you can do is search for a technical partner to create some type of lifestyle business where you can split the profits. I'm sure with all your client relationships you might be able to come up with a few good ideas that solve some niche problems, and you'll even have a starting base of customers if your solution caters to their problems. From my own perspective, I would love to work with someone technical albeit with little time to jump on a side project with me. Even if I was the primary contributor, knowing that my partner can bring money, connections, and technical ability is an enticing proposition.
What that means is that if I want to have a long-term high-security relationship with a couple of key clients, I basically hit a ceiling in hourly rate (a good rate, but slightly below what your general multi-person agency will charge) and I've been at that ceiling for a couple of years now - nowhere close to $250k .
It appears the way to transition out is to bump the rate up significantly so it doesn't appear you're trying to compete with agencies - maybe around $200/hour or 6k-8k/week. But the problem with that is that the long-term relationships can go out the window. They only want to bring you in for shorter periods of time, and you have to hustle more. So the marginal benefit isn't awesome. And I really like my clients and I hate hustling, so I stick with where I'm at. This higher rate I've had for the last 2-3 years is nice and all, but practically what it means is that I'm projected to be able to retire at age 65 instead of age 75. It's not a dramatic difference in lifestyle.
So instead, I've just been trying to amass a larger emergency fund outside of maxing my retirement savings every year. And then I'll do something with it... what, I don't know.
I know, first-world problems, but it seems that now that I finally have a bit of a nest egg, the income-maximizing move would be to use it to invest in one of these other careers the forbes article mentions. But what? Nest egg money isn't really the limiting factor behind a retail operation, it's the actual retail product idea, and I don't really think that way. What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not. So I'm sort of in this state of perpetual mulling. I wonder if I could just find a talented-but-poor subcontractor, get my own general contractor license, and handle all the business and project management parts (which I love) despite knowing nothing about construction.