Building Wealth

Ebony Smith seeks the tools to increase her net worth

Ebony Smith says losing her job was a blessing in disguise. In 2008, the former investment banker was about one month into her dream job when Lehman Brothers Holdings Inc. filed for bankruptcy. Smith worked with the firm’s successor for five months. But, in January 2009, she was laid off with a severance of three months’ salary. By the summer of that year, Smith was back at work as a financial analyst with a major global consulting firm.

Smith, 30, made some tough choices to be able to pocket about $25,000 of the more than $35,000 in severance she received. She left New York where her living expenses were high (roughly $2,000 a month), and moved in for three months with her boyfriend in Pennsylvania where she paid $200 to $300 for rent. When she got her most recent job and returned to the Falls Church, Virginia, area she decided to share a townhouse with two other roommates. Smith pays $960 a month instead of the going rate of $1,300 a month for a studio apartment.
With a decent income and many of her expenses under control, Smith is ready to pursue her dream: amassing a net worth of $1 million by age 40, and semi-retiring by 55 with a net worth of $5 million.

There are two pressing financial issues standing between Smith and her goal, however. Smith owns a two-bedroom, two-bath condominium in Wheaton, Maryland, which she rents out for $1,644 a month. The condo is “no longer a good investment,” says Smith. Considering the state of the rental market she can’t charge as much as she’d like for the apartment. She’s about $300 short each month in covering the $1,924 mortgage and related expenses, such as the 8% of the monthly rent she pays to a property manager. Despite the fact that it’s losing value (she bought the apartment in 2005 for $360,000 and it was last appraised in January at about $325,000 according to real estate Website Zillow.com), annual property taxes have climbed from $1,200 to $3,000. And since it’s no longer owner occupied, Smith no longer receives certain homeowner tax benefits, or those she qualified for while in school. Ideally, when her tenant’s lease is up, she says she would like to sell.

Smith’s second biggest financial hindrance is the $135,000 in student loan debt she accumulated while getting her undergraduate degree in finance from Howard University in 2002 and law degree from Georgetown in 2008.
Smith has an entrepreneurial side that she wants to fully explore later in life when she enters semi-retirement. Eventually she would like to educate others about financial literacy and has begun conducting personal finance workshops.

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  • RB

    I’m hopeful that when she gets her certification in financial planning that she will realize she was given bad advice. It makes absolutely no sense for her to be paying someone else’s mortgage when she owns a two bedroom condo in one of the wealthiest counties in the D.C. metropolitan area. Especially while the real estate market is slightly depressed. If she should sell anything she should sell her Cadillac and move back into her condo and take the subway from Wheaton to Falls Church. Then she can invest her insurance premiums and take advantage of the tax breaks for owner-occupants. It doesn’t make any sense for her to be taking a $300 loss each month on a rental unit when her tax breaks from being an owner-occupied homeowner would negate the $300 per month shortage. If she is currently sharing housing with two roommates she shouldn’t have any problem sharing a two bedroom condo with one roommate or better yet forget the roommate and use the extra room for a home office for her financial planning business. My accountant use to live in a condo and had a thriving home-based business and he didn’t even live on the subway line. He eventually sold it and bought a townhouse to operate his business from. The value of her condo will more than re-bound with the market given it’s location in one of the best school systems in the nation, with easy access to the D.C. subway line, in a designated arts district (one of few in the nation) and a host of ethnic restaurants. There is no business owner in their right mind that wouldn’t want to own real estate in that type of business district. It is such a disservice to give people such bad financial advice especially when they know nothing about the local market conditions of the people that they are giving advice to.