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26 Year Old Engineer and Landlord
Old 03-22-2012, 08:54 PM   #1
Confused about dryer sheets
 
Join Date: Mar 2012
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26 Year Old Engineer and Landlord

I have been lurking for a while and really value the advice and opinions on this forum, so I will introduce myself.

I am currently 26 years young, making W2 income of 70k per year, roughly 10K from consulting services, and 20k in rental income from 3 bedrooms that I rent out in my primary residence.

I am getting married this fall and do not plan on having children in the future. As for my current retirement savings it is divided up as such: 15K company 401k plan, 14K high yield savings account, 7K in the checking, $400 in assorted other accounts, 31K in IRA, 26K in Roth IRA, 10K in a brokerage account. My investment holdings are almost entirely equities with the break down roughly: 30% emerging markets, 20% commodities, 25% large cap, 25% small cap.

I have no credit card debt, no student loans, and own my little Acura free and clear.

The ideas I am toying around for money usage are:
- Quickly put 20K into my house to stop mandatory PMI payments(House is worth 225K, have current debt of 207K but interest rate is 3.75%)

- Strongly considering buying rental real estate (3BR 1BA row can be acquired and gotten rent ready for 80K and rented for between 900-1100). If I do this should I wait and buy cash. I am member of a local real estate investment group where I have made many contacts(am also currently a licensed realtor)

- I am currently only putting 10% of my salary in my 401K-- so 7K per year. I feel like I have so much already tied up in retirement accounts that can't be tapped, until later in retirement. Opinions?

Looking forward thoughts and opinions, thanks in advance!
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Old 03-22-2012, 09:24 PM   #2
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ronocnikral's Avatar
 
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so when you get married, how much rent are you going to charge your new bride?

In all seriousness, you seem to be doing well. While I am not much older than you, I haven't touched real estate b/c of the PITA factor it tends to bring to one's life. It is a way to develop an income and there are many who are successful at it. So, if that is your thing, I certainly wish you luck.

You may want to research 72(t) and SEPP. I believe 72t.net has all the information you need. I think putting in as much as you can into retirement accounts is wise, as the tax advantage is too great to pass up.

No international exposure outside of the emerging markets?

and Welcome!
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Old 03-22-2012, 09:32 PM   #3
Confused about dryer sheets
 
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Thanks I will look into the 72(T). I have roughly 3-4K of developed foreign markets, so under 5%.

I will still keep roommates when my bride moves in, we are both interested in traveling 3-4 weeks per year and retiring young. My bride will however pay the utilities and take much of the food budget over.
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Old 03-22-2012, 10:17 PM   #4
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Quote:
Originally Posted by RyanM View Post
I am currently 26 years young, making W2 income of 70k per year, roughly 10K from consulting services, and 20k in rental income from 3 bedrooms that I rent out in my primary residence.


The ideas I am toying around for money usage are:
- Quickly put 20K into my house to stop mandatory PMI payments(House is worth 225K, have current debt of 207K but interest rate is 3.75%)

- Strongly considering buying rental real estate (3BR 1BA row can be acquired and gotten rent ready for 80K and rented for between 900-1100). If I do this should I wait and buy cash. I am member of a local real estate investment group where I have made many contacts(am also currently a licensed realtor)

- I am currently only putting 10% of my salary in my 401K-- so 7K per year. I feel like I have so much already tied up in retirement accounts that can't be tapped, until later in retirement. Opinions?

Looking forward thoughts and opinions, thanks in advance!
Congrats on your extremely strong and focused start! A few comments:

PMI - I believe that you can't get PMI canceled unless it's been longer than (I think) 24 months since you took out your mortgage. Check your mortgage documentation and see what it says, and realize that you may have to pay for another appraisal to get it revalued. To be safe, be conservative on what you think your house would appraise for, and add a few extra percent to make sure your house would appraise for at least 20% equity.

Regarding the PMI analysis, just compare what you're paying extra in PMI each year versus the lump sum you'd pay down on your mortgage and the alternative yield you could get in your investments (maybe 6% per year?) Odds are, it's worth it to pay down your PMI, but it's good to actually go through the steps to get a true comparison, so you get in the habit of doing financial comparisons and basing your actions on the black-and-white numbers and not because it "feels good" or "feels right".

Tax-advantage plans: what are your investment options in your 401ks? Do they offer a match? It could make sense to divert a small percentage of your income to taxable investments, but at the very least, I would diversify your contributions so part go to a traditional 401k and part go to a ROTH 401k (if they offer it). Also, at the very least, max out your ROTH IRA.

The rental option: It looks like you have a handle on the local rental market. Personally, I'm a bit at odds with what to suggest - you mention you're a realtor....is that is your full-time job, or do you do that on the side as your 'consulting' income? Owning a rental and being a realtor isn't quite the same as investing in company stock with your employer, but it's somewhat related in my mind. I'd consider the rental, but given that you already have 3 boarders in your house after you're married, you might want to think long and hard about if you might eventually rethink that arrangement....which might or might not make buying a rental more attractive (or could make it less attractive if you and/or your future spouse get so sick of rentals/boarders that the pendulum is swung to the other extreme).

If you think you'd be able to consistently find boarders in a rental, I'd say go ahead and give it a try - but make sure you have PLENTY of emergency savings if you finance that rental, to make up for 3 months of back rent that wasn't paid, and to pay for 2 months while you fix it up for the next renter to move in.
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Old 03-23-2012, 06:56 AM   #5
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Just a caution: many people feel like they want no kids and a bunch of roomies/boarders in their 20s and then go thru a metamorphosis by their early 30s and turn into the Cleavers. May not be you but... In any event, maxing out your 401Ks makes sense as does saving everything else you can.

As for real estate, I have no expertise but I always envied people I knew who bought up and rented out multiple properties in my area decades ago when the prices were low. They did very well. Prices are good in a lot of areas now, so it may be a viable strategy. Only you know whether you are up for and capable of maintaining the places and dealing with the hassles and cash flow interruptions. Might give you a little replacement income when you toss out the paying roomies for the draining kids.
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Old 03-23-2012, 09:34 AM   #6
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Since you came here seeking opinions, I will opine. It is implied above that you and your bride to be will not be sharing a checking account. I would advise against this. This is a personal opinion, and I am sure people will agree and disagree with me.

Also, I would be more realistic about renting out the rooms in the house you and your soon to be bride will share with them. It most likely won't last in the long term and there is a good possibility it won't last in the near term either. I know I would personally ask for you to let me out of any agreement we had prior once your bride moved in. IF you refused, I would just move out anyway and would argue you changed the agreement we had made, as I wasn't expecting another person in my way to do laundry, another cook in the kitchen, another jefe who is around questioning every little thing I do around the house, another person who could sit in my favorite spot on the couch and I most definitely wasn't expecting to be kept up at night by listening to a headboard banging against the wall every night.

And that's if don't have to come home everyday to a wife who nags you about the tenets who didn't unload the dishwasher, or didn't load it "correctly," or the one who "bombed" the toilet and stunk up the whole house, or the one who pissed all over the toilet in the half bath, or the one who walks around in their underwear, or the one who put their feet on the couch after walking around outside barefoot etc, etc.

JMO.
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Old 03-23-2012, 01:06 PM   #7
Confused about dryer sheets
 
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@ MooreBonds,

You are correct with the PMI, it will be another 10 months before I can request an appraisal. but the yield on the removal would be between 4-7% minus the one time appraisal fee. So I will examine this more closely in 2013.

I am getting the full match at my work - contributing 10% and they are contributing 4% (50% match up to 8%). The investment options are descent at work, they have about 10 index and mutual funds through ING. I am currently splitting 5% regular and 5% roth 401K.

I am a full time engineer, I have my real estate license and represent family and friends only. My additional income is a combination of that and private math tutoring. I will most likely give up my realtors license in the next year as it is too much hassle on the return and the expenses.

@ Donheff

Time will tell Right now I don't want kids, but if some day I have them I want to best in the possible financial situation. Right now I am trying to determine if I am up for doing investment properties (energy and cash)

@ ronocnikral

That is correct we will not be sharing a checking account at first the plan will be to share accounts in about a year. I am a firm believer in starting in the shallow end of the pool first before diving into the deep end.

As for the boarders, this has been on my mind as well. I have talked to my future wife about this and we are on the same page. We both feel for at least the next couple years this is the best possible situation to set us up for success later in life. But only time will tell right. I will definitely provide an update and updated in the fall with how things are!

I really appreciate the opinions. The 72-T exception gives me good reason to bring my 401K contributions back up to the maximum.
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Old 03-24-2012, 12:29 AM   #8
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Welcome, Ryan.
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