It’s Official: We Are Moving to Newport Beach, California

A Look at How We Made One of the Biggest Decisions of Our Lives and Careers

After years of planning, research, comparative analysis, and extensive travel around the country, we have finally made a decision: Aaron and I are moving to Southern California.

Whenever this topic has come up, I’ve usually been asked two things:

1. Our reasons for moving and
2. Our thought process behind deciding where to live.

The first question is much too complicated to tackle right now.  It’d be best for a long conversation over coffee or a podcast.  Suffice it to say, they are multiple, complex, and, in many cases, deeply personal, but, above everything else, it comes down to us becoming parents through gestational surrogacy.  As guys who spend a lot of time thinking about risk management and second and third order effects, the laws and political environment in Missouri have become sufficiently antagonistic that we have little faith our rights as both fathers and as a married couple would be respected without the possibility of extensive legal battles should a remote-probability adverse event occur.

The second question, though, is one I’m much more eager to address because by walking you through how we thought about the process, I feel there is a chance I can give you some insight into our way of approaching problems that need to be solved.  By sharing with you some of the methodology, my hope is that you might find something useful you can use in your own life or business.  The framework for how we try to examine complex, multi-variable trade-offs can be applied just as easily to selecting a wholesale vendor as it can a geographic relocation.

Step 1 – We Identified Different Scenarios That We Thought Might Represent Our Best Life

There are two planning tools that I have always found particularly useful.

1. Take some time to yourself – it may require days, weeks, or even months – and envision the broad outlines of what your best life would look like.  How do you spend your time?  What does your routine look like?  In what kind of building do you live and/or work?  With what type of people are you surrounded?  What are your hobbies?  What additional skill sets do you have?
2. Envision yourself ten years in the future, if you changed nothing about your present life.  You keep doing exactly what you are doing.  You are now future you.  What does your life look like?  How different is it from that first scenario?  What do you wish you would have done differently ten years in the past to change where you are now?

Early on, when Aaron and I were teenagers living and working out of our dorm room in college, our best life focused on achieving a level of cash flow that allowed us to: 1.) live comfortably, 2.) regularly add to our net worth so we could accumulate more assets that produced dividends, interest, royalties, and/or rents as we get a lot of emotional joy out of seeing our portfolio grow, 3.) kept us near our family, and 4.) gave us total, complete control over our time so we could do whatever we wanted, whenever we wanted.  That was the vision that drove us; that informed our decisions.  We didn’t wake up and say, “We want to be involved in [x] business or industry,” rather, we looked around for whatever opportunities we could create and/or acquire based upon our own unique trade-off calculations, opportunity costs, skills, and temperaments.

Step 2 – We Identified Our Intentions

I’ve talked with you about the power of intention in the past.  Being aware of your own intentions, and specifically identifying what you are trying to accomplish, seeking to avoid, or otherwise change is one of the most effective ways to go about designing your life with purpose.  A large number of mistakes people make are driven by the fact they are discontent or know something needs to change so they take action without that action being focused and targeted.

The key with this step is a sort of brutal honesty, a willingness and ability to look inward and evaluate yourself in a way that every aspect is scrutinized with a withering, blinding, light so that no known shadow remains.  Two people can have the same goal but the motivations behind those goals can be wildly different.  That matters.  Knowing the motivation can help you better identify what you actually want, not what you think you want.  It can help you avoid wasting time, energy, and resources that don’t actually improve your life.

Step 3 – We Used Our Intentions to Determine the “Must Have” Conditions

The next step is to figure out how to take the information you learned from identifying your intentions and turn it into a priority list for certain conditions – to rank, in a sense, what things are non-negotiable, what things you can potentially give up in exchange for something else, and what things are icing on the proverbial cake – that, if you can get them, great, but they aren’t a big deal if they aren’t possible.

For us, we realized that if we were going to go through the trouble of moving, it must deliver the following wins:

• As it pertains to our family, the move must result in:
  1. Us being awarded absolute, non-negotiable custody of our children before they are born through a pre-birth order.
  2. Under a God-forbid unthinkable scenario where one or both of us died, the children must enjoy all of the legal protections as our heirs that they otherwise would have had if we had been a straight married couple.
  3. Us being in a cultural environment in which our children and family are unlikely to face any meaningful discrimination.
  4. Us living and working in a place we find physically beautiful.  For better or worse, Aaron and I are significantly motivated by the aesthetics of our surroundings.  The more at peace we are, the more efficient we are.  The more efficient we are, the more successful we are in growing and nurturing our estate – the compounding machine we have lovingly built from nothing.  This might mean mountains, it might mean the ocean, it might mean a gorgeous skyline.
  5. Our children being brought up in a place where education is valued and there are nearly endless real-world examples of success – doctors, attorneys, real estate developers, entrepreneurs, designers, chefs, musicians, authors, etc.  We want them to see positive role models of people who live intelligently and who add value to the world.
• As it pertains to our global asset management firm, Kennon-Green & Co., the move must result in:
  1. Little to no distraction in our goal of serving our clients and helping them attempt to protect, preserve, and grow their wealth.  This means that we must emphasize efficiency, speed, and quality over our own cost savings.  For example, in getting our home ready for sale, physically relocating, and setting up our new life half-a-continent away, we must outsource as much as we can to third-party professionals.
  2. Our personal life being fully-managed so that any distraction that encroaches upon Kennon-Green & Co. during our start-up period is minimized or eliminated.  What little free time we have needs to be spent thinking about the best ways to intelligently structure the firm’s back, middle, and front-office so we can follow that plan in a near effortless rollout as we increase assets under management.
  3. Our residence being near the building or complex in which we ultimately plan on opening Kennon-Green & Co.’s office.  Both Aaron and I want to be able to walk or bike to work.  This will be particularly important when our children are born as we’d rather invest our time serving our clients or being at home with the kids.  It also has some major health benefits that we think are important.  While it may seem small, that level of daily exercise spread out over years can lead to significant advantages.
  4. Security that restricts access to the grounds, building, and units in a way that adds redundant levels of protection on top of certain other measures we’ve taken.
  5. A geographic location that has a long-run way in terms of socioeconomic demographics as we expand the firm over time.  Given that we emphasize working with other affluent and high net worth families, the absolute number of families that meet our minimum investment requirements within a 10, 50, 100, and 250 mile radius can add a powerful tailwind over the years.  (To expand upon this point: all else equal, life and business are much easier when you find rising tides or fertile soil.  You’re going to have a much easier time growing corn and soybeans in rich Midwestern farmland than you are the arid Arizona desert.  Be aware of those larger factors as it pertains to positioning your business.  This is a major principal that is built into almost every successful enterprise.  Look at a company like McDonald’s – they devote enormous resources, including studying traffic patterns, to determining whether one parcel of land will result in more revenue versus another parcel of land.  In many cases, both McDonald’s and the franchisee end up making more money by McDonald’s purchasing the more expensive real estate despite the higher initial costs.)

We also identified other factors that matter to us.  For example, all else equal and given the joy we experience from compounding our money, we would rather pay lower taxes than higher taxes.  To some degree, depending upon area, effective tax rates can be managed in ways that make them lower, and in some cases, considerably lower, than marginal tax rates, adding an additional layer of complexity.

Step 4 – We Reverse Engineered Hundreds of Data Sets Looking for States, Cities, and Neighborhoods That Met Our “Must Have” Conditions

For those of you who are data geeks like me, the next step is a lot of fun.  Going through each of the items on your “must have” conditions list and coming up with a data set that meets each criterion.  To help you see how we did this, I’ll give you some insight into what we did on each item of our list.  Let’s start with the first five items, which were under the personal consideration column.

Personal Items #1 and #2 – Egg Donation and Gestational Surrogacy Rights and Protections

For any parent, one of the worst imaginable scenarios would be losing custody of a child.  Because the laws of many states have not kept up with medical technology, the statutes and case law in many states are ineffective or out of date, creating potential risk exposures.  Aaron and I realized that we were dealing with two different areas of exposure:

1. The egg donation process – We wanted to make sure sure that both we, and our egg donor, were protected and that the spirit of the arrangement would be honored under law should a conflict arise in the future.  Many states only have written laws covering sperm donation, not egg donation.  This means that a couple using a donated egg has to rely on case law from the courts or the discretion of a judge to determine parental rights.  That uncertainty is terrifying to us.
2. The gestational surrogacy process – We wanted to make sure sure that both we, and our gestational surrogate(s), were protected and that the spirit of the arrangement would be honored under law should a conflict arise in the future.  Here, the laws are all over the board.  Consider one scenario: a husband and wife.  The wife is unable to carry a baby due to a condition that could be life-threatening.  However, her eggs are fine.  She and her husband create embryos through IVF.  They work with an agency to find a gestational surrogate – another married woman with children of her own.  The gestational surrogate and her husband perform this incredible act of altruism for the other couple, yet, when the baby is born, the gestational surrogate and her husband are automatically put on the birth certificate, not the biological mother and father.  This puts the gestational surrogate and her husband at risk (medical costs, child support, etc.) and the intended parents at risk (losing custody of their baby).  Other states are regressive and ban gestational surrogacy outright even though there is considerable question as to whether those bans are unconstitutional or not.

Our solution was to work with several attorneys and other resources to identify which states offer the most favorable rights as it pertains to both of those categories. By the time we had finished ranking each state by the two criterion I mentioned – egg donation rights and gestational surrogacy rights – two things became clear.

1. Two states were far and away the winners: California and Illinois.  Nowhere else in the country comes close to the protections and rights they offer their citizens.
2. Several states were immediately, and without question, removed from the list of possibilities as they triggered what we considered to be “automatic fail” conditions.  This had major implications for our move.  For example:
   1. New York City was a serious contender given certain advantages in the regulatory environment for our asset management firm but New York state bans gestational surrogacy because, again, its laws are regressive.  We loved our college years on the East Coast and would have gladly returned.  In many ways, it would have been like going home.  However, none of the benefits could make up for what we considered a non-negotiable risk.
   2. Seattle and Bellevue in Washington state were other cities we considered as we particularly liked the lack of income tax.  However, Washington state banned gestational surrogacy up until recently.  The ban was overturned but it would not go into effect quickly enough to be useful to us.  (In fact, I can say with a near-certainty that had the repeal been effective sooner, this is where we would have ended up for at least the next few years, building our life and business from the Pacific Northwest.)
   3. Austin, Dallas, and Houston in Texas state were a consideration, particularly given our asset management firm was already registered in Texas and, like Washington state, we could avoid income taxes, but the antagonism of the judicial branch and state legislature to gay rights couldn’t be overcome, even in a post-Obergefell world.  Ordinarily, it’s a fight I would consider worth having but, again, nothing can distract us right now from Kennon-Green & Co. and its clients.  The firm, and the clients, deserve our full attention.  It was a shame, really, because the ease with which we could have relocated would have made these cities top contenders.

Personal Item #3 – Us being in a cultural environment in which our children and family are unlikely to face any meaningful discrimination.

This is one of those things that is more difficult to test for directly but you can look for several conditions that, when present, particularly simultaneously, likely indicate it exists.  These conditions included:

1. State and local protections against firing an employee, denying him or her housing, and/or denying him or her service in a public accommodation based upon sexual orientation.
2. An educated population where the percentage of citizens holding college degrees is higher than the national average.
3. Businesses that openly display the Pride flag during the month of June in an attempt to show support and/or induce shopper loyalty as an appeal to shared values.
4. Areas in which public displays of affection, such as holding hands, between same-sex couples are a non-event; there is nothing special about it as it is not even worth noticing or caring.

Of the states that remained on the list, several areas in Illinois and California once again came out ahead.

Personal Item #4 – Us living and working in a place we find physically beautiful.  

Here, we looked at mountains, water views, landscaping, city skylines, and other factors to identify specific cities in which we might live.  In Illinois, certain areas in Chicago made the cut and in California, several cities were included.

Personal Item #5 – Our children being brought up in a place where education is valued and there are nearly endless real-world examples of success – doctors, attorneys, real estate developers, entrepreneurs, designers, chefs, musicians, authors, etc.  We want them to see positive role models of people who live intelligently and who add value to the world.

Of the cities that were now on our list as having met all of our requirements thus far, we circled back around and looked at education levels.  We also looked at the number and quality of private schools, public schools, universities, and specialty-schools, median individual and household income, median net worth, the number of Fortune 500 businesses headquartered within easy driving distance, the job market, the number of households with liquid investment portfolios in excess of $1,000,000 and $5,000,000, respectively, the number of billionaires, the number and quality of art, scientific, and natural history museums, and other comparable metrics.

Step 5 – We Thought About Potential Legal and Financial Structures (In This Case, Ownership versus Leasing)

We also needed to factor into consideration the list of “Must Have” conditions for our business. Several of these overlapped with our personal considerations so by this point, many of them had already been addressed.  Before we could turn to that, we needed to address another decision: leasing versus buying.

Aaron and I generally have a preference for outright ownership.  It’s our style.  However, it is not always the most intelligent or rational way to behave.  We began by analyzing real estate values in the areas that were now on our much-shortened list of candidates.  We concluded that in every case, it was not an intelligent time to buy given our unique trade-off calculations, the fact interest rates were at or near all-time lows, and property values were at or near all-time highs.  Some candidates were worse than others; e.g., in the case of Chicago, the specter of significant tax increases on top of potentially rising rates coupled with large amounts of inventory coming online as construction of several major projects ends over the next few years was enough to convince us that we didn’t like the risk-reward return profile on an upper-tier residential condominium.  This conviction was strengthened, in particular, by many of you in the community who relocated and generously shared your thoughts and advice, recommending that we rent or lease a property for a year or two to determine if we like the neighborhood.  That way, we could better get to know the intricacies of a community before committing to it long-term.

(On a side note, please understand that we weren’t trying to predict real estate prices.  Rather, we were looking at all of the variables we could and asking ourselves, “If we decided a few years from now, we wanted to move, again, what is the likelihood that a purchase today, present known factors considered, is going to lead to a satisfactory outcome under a range of economic conditions?”.  We felt like there were too many possibilities that the results might be less-than-satisfactory, particularly if you considered the fact that such a short turn-around would involve the payment of a real estate brokerage commission.  We also felt there weren’t a lot of chances for major positive surprises.  Our situation is unique.  Very few families have the exact mix of considerations we have at this juncture in our lives.)

Step 6 – We Searched for Specific Residences That Would Meet Our Requirements

At this point, two specific geographic areas kept coming back up, beating out all others.  Neither was perfect, and each lacked in some areas while excelling in others, but they were:

• The areas in and around the Gold Coast in Chicago, Illinois and
• The areas in and around the so-called “Golden Triangle” of Southern California

Again, this list would have been much longer if it hadn’t been for us having kids through gestational surrogacy.  At this point, we were tempted to keep revisiting the Seattle area as a possibility because it hit all of our other requirements except the one “automatic fail” condition with an added benefit: the lack of an income tax would be a major windfall in our case.  However, we weren’t going to wait for the implementation of the surrogacy ban repeal to happen next year.  Our family matters more and, to the extent that we can control things, we are going to win, adding more cash flow, income, and net worth to our estate.  We’re willing to bet on our talents and drive to overcome what amounts to a compounding handicap.

Realizing that we were more comfortable leasing, rather than owning, we used the remaining list of non-addressed business “Must Have” conditions to really hone in on specific street-level properties.  We toured multiple cities multiple times, thousands of miles apart.

Step 7 – We Narrowed Down the Two Finalists

In the end, it came down to two possibilities.

Finalist Number 1 – A 3 Bedroom Penthouse in the Streeterville Neighborhood of Chicago, Illinois.

Here, the plan was to work from the residence for a reasonable amount of time.  Then, if we decided the city was going to suit our needs, we could commit to a long-term commercial lease somewhere in the Loop, preferably a few blocks away, so we could start hiring employees at the firm.  It would also allow us to work from home more easily so if we had to run something to or from the office, we could do so without too much hassle; something that would be especially useful when the two babies were newborn and needed a lot more time and attention.  This strategy would give us flexibility without committing to a long-term commercial lease in a city where the information asymmetry between us and everyone else was significant.  (Once you’ve lived and worked in a place long enough, you start to know which streets are best, which areas are truly safest, and which neighborhoods fit your personality.)  In addition, we could get a proportional tax write-off during that transition period so the housing costs wouldn’t be nearly as high as they might appear at first glance; an added bonus that gave us some sense of satisfaction.

We physically traveled to Chicago and toured the available units twice, some facing the city, some facing the water.  We thought a lot about the type of life we would live there; about the blog entries we could write showing restaurants, our adventures in cooking … the apartments are built atop a hotel, so when family and friends came to see us, especially after the babies were born, they’d be able to come up to the unit in a manner of minutes without having to go outside into the frigid Chicago winter.  It’s just such a great city with such wonderful people.  It also had a major cost advantage over the next finalist.

On the downside, we would have to spend half of the year living in what amounted to an ice block and the crime, even though largely, but not entirely, contained in the areas away from where we were looking, is a political and administrative failure that would always be present in the back of our minds.  We particularly wouldn’t have liked driving the car we bought recently as the news was filled with stories of even police officers being carjacked by minors that the judges were dumping back on the street in less than twenty-four hours.  This happened because of a change in the law in 2016; a change that is indicative of a failure to make tough decisions for the good of the population as a whole.  Specifically, those under the age of 18 who violently steal a car are no longer automatically transferred to adult court to face adult consequences for fear of ruining their chances in life.  The results are predictable.  The number of carjackings has nearly tripled.  Another sign that concerned us: despite still containing one of the highest absolute count of millionaire households anywhere in the world, Chicago had begun to experience a net out migration of millionaires.  Looking at wealthy people as a whole, net migration is really useful information.  The class, in the aggregate, is a sociological canary in the coal mine a lot of times.  We did believe, however, these problems were fixable.  People often forget that New York City was far worse back in the 1970s than Chicago is today.

Finalist Number 2 – A 3 Bedroom Residence in Newport Beach, California. 

Here, the plan was mostly the same.  We would work from the residence while we got established in Southern California.  Once we felt we truly understood the area, and were ready to hire employees, we would get an office at one of the buildings on or around Newport Center Drive.  At that point, we’d convert the rooms we had been using for home offices into a nursery and a personal study or, maybe, a nursery and a guest room.

This would allow us to walk or bike to and from work, as well as be within walking distance of everything you could possibly imagine, all while maintaining perfect temperatures year-round.  It’s hard to reiterate how appealing we found this possibility.  Want to go to the bank?  You can walk.  Want to grab dinner at a great steakhouse?  You can walk.  Want to see a movie?  You can walk.  Want to get measured for a new suit?  You can walk.  Feel like enjoying some See’s Candies?  Yep, you can walk to that, too.  Need to pick up a new iMac or MacBook?  You can walk to the Apple store.  Want to shop for furniture?  You can walk.  Feel like breaking out a cookbook and trying a new recipe?  You can walk to the grocery store.  Feel like browsing books?  You can walk to Barnes & Noble or, if you are up for a bit of a longer walk, the public library.  This all holds true in the middle of December.

On top of that, we’d be only a few minutes from the beach.  We’d be roughly 18 miles from Disneyland, where we could get annual passports and, maybe, if we decided this is where we wanted to be indefinitely, put ourselves on the waiting list for a Club 33 membership.  The idea of our kids growing up with that as their local theme park is really appealing to us.  We’d be fairly close to both Los Angeles and San Diego, two major cities which also have some of the biggest potential markets for Kennon-Green & Co.’s services.  We’d be a few hours from Las Vegas by car; a great option not only for seeing live concerts but giving us proximity to a major convention city that might be useful if we were studying a given market or looking for a specific type of vendor.

Step 8 – We Made a Decision

Every single time Aaron and I visited Newport Beach, we looked at each other and asked ourselves, “Why don’t we live here?”.  Every single time we visited, we mentioned to friends and family, “if we didn’t have to go back to Missouri, we would just stay.”

On Thursday, April 19th, 2018, he and I were sitting at our desks working on some client portfolios.  We realized it was time to make an executive decision about where to relocate – at this point, we had analyzed every possible variable and there was no wrong decision among the finalists we selected; we would make whatever we decided work and succeed regardless but the time had come when this was entitled to no more of our attention.  We had just been to Chicago not that long ago and wanted a fresh comparison to Southern California.  We threw a MacBook Pro in a bag, booked two roundtrip plane tickets to Los Angeles, and arrived on Saturday morning.  We figured we’d stay for a week, work from the hotel, then come home and make a decision.  That would be that.

By Monday morning, we were done.  We had made several appointments to tour real estate.  During our first tour, we were shown a unit that had not been listed on the company’s website and that had just become available.  We knew the moment we walked into it … this was the space.  This was where we wanted to bring the kids home when they were born.  This is the base from which we wanted to put down roots in Southern California, eventually finding an office and branching out from there.  For the sake of getting the full picture, we went ahead and completed the tour of other options but this was it.  We cancelled the rest of our appointments for the day, arranged a multi-year lease with plans to take possession on June 7th, 2018, and spent the rest of the week working like usual as we prepared to return to Missouri and begin executing a plan to make our way to the West Coast.

In our hearts, California is where we want to be.  Do we like the taxes?  No.  But, as the saying goes, price is what you pay, value is what you get.  We feel that we are getting a fair deal, especially given the peace of mind California gives us in terms of our parental rights as fathers.  Even if we only end up here for a few years and then decide to move (something that doesn’t seem likely), that gift alone – the protection of our rights and the rights of our children – means the state will have earned the money.  It’s a trade-off we’d make every time.  What frustrates us is that it is a trade-off other people don’t have to make.  It strikes us as deeply unfair but that is life.  You have to do what makes the most sense and deal with these things.

How We Are Handling the Relocation

For now, Missouri remains our home and principal place of business for the firm.  However, we will be putting our house on the market and selling it, exiting the state as soon as reasonably possible.  Once we are ready to complete the transition, we will shift our citizenship to California, drive our car from the Midwest to Newport Beach, and pick up like nothing happened.  If we time it correctly, we shouldn’t even miss a day of work at Kennon-Green & Co. because we can leave towards a weekend and arrive before the start of the next work week.  The moment the official relocation happens, the firm’s clients will be the first to be notified as we’ll send out a change in address and file some other official paperwork.

It’s going to be exciting to share pictures of our new life in Newport Beach.  Until then, let me temporarily geek out and share with you the color choices we’ve made: it’s a palette of white, ivory, gray, and, in limited spaces, black with the color accent being a rich emerald dark green.  Those of you who enjoy this sort of project as much as I do can imagine how much fun this is.