44F from Naperville, IL, trying to retire early, involves real estate

[rachael777]

Hi all

I am trying to be 'financially independent' early (by 6/2018)and do work I like paying $30-50k a year or maybe even what I do now but less and lower stress making $90-100k a year. I lost basically everything in 2009-2012 in a divorce, lawsuit attachments due to my ex, and the real estate crash. I am not looking to retire and do nothing (yet). I just want more time and less stress.I am EXTREMELY motivated as my Dad took sick this year and the change and quickness of it is scary... makes me see life is VERY short. I went the real estate/higher risk route as I see it as a faster way to get my monthly needs (be financially independent) taken care of then saving.. I am saving as much as I can IN ADDITION to purchasing the real estate

Current situation

1. make approx $120k on contract, contract renews or not each year, if I lose my contract, I anticipate 2-3 months downtime while I find another one. I have an emergency fund for this that is fully funded (not shown below)
2. 401k/IRA/Roth/HSA= $52k
3. Taxable investments= $116k
4. I own 6 homes right now, they are paid off, net $3800 a month (I am transitioning property managers right now and there may be some smoothing out in the next few months. )
5. I am paying off (2) 3 units, pay off date 6/2018, I will net $2500-$2800/month once paid off, currently I net zero as it all goes to the payoff (early payoff requires me to put aside $2k additional a month )
6. I maxed out the 401k, roth and hsa this year and intend to continue to do so
7. I am saving everything I can which amounts to approx $4-5k a month on top of the 2k/month for the 3 units above. This 4-5k goes into the taxable investments. The $2k a month I do not track as an asset as it will payoff the 3 units.

My goals are to 'be financially independent' by 6/2018 with $400k (hopefully more) investments/cash, owe less than $100k on the house, and $8000 net cash flow a month and then continue adding to that investment/cash stash from there but in a more relaxed way not working a high stress job

I am trying to convert my mortgage to a 15 year at a lower rate. The payment will be $300 more than now.. so not significant.

Budget averages $4700 a month.. of this $3150 is my expected HIGHER mortgage payment... right now budget is $350 less w my current mortgage payment. I do not skimp. but we can even go up to $5000 to get to worst case. I expect to payoff my house inn hte next 7-8 years.

I am dating someone but I am not sure it is going somewhere and not sure we are on the same page about life and active retirement.. exploring, shortness of life, finances etc.. Trying to figure things out there. My house is very nice but I would be satisfied with a lesser house in a more neighborly location. I am not tied to my house. I anticipate I will get remarried at some point and my housing costs may be decrease

I see a lot of people here with 2-6 MM. I do not have that now.. nor am I aspiring to that... I do not feel I need it. realistically though if my net cash flow goes according to plan my rentals will cover my needs so all my income can be saved from late 2018 on (and then my savings and investments can build to that higher amount) and still not be scrimping...

I feel I need and want time to enjoy life. I anticipate more money spent to travel, take some trips (while young) so should probably allocate some money to that as I get nearer to the date.

Oh. Dad is 76 and stays in a fairly nice alzheimers only place and his costs are $7600 a month (care and other misc meds etc) ... regularly... so makes me think all this about health care costs etc is not as bad as I thought

what am I missing? what can I do more or better of or at?

Wanting to learn and fine tune as I go..or redirct efforts if I am going down the wrong path

thanks everyone!

 

[easysurfer]

Hi Rachel,

Welcome to the board. It seems like you've given this a lot of thought from the detailed descriptions.

What I'd like to ask is, for your retirement, are there any dependents to care for?

Not having dependents (children or others) makes early retirement a lot easier. No college expenses to have to pay for, for example. Of course, you need to balance the financial plan vs life plan.

I know for me, when I pulled the plug on my career, I was talking to a co-w*rker, who said she'd like to retire too but can't as she just had couple of young ones to care for.

The good thing about you having divorced is the decision process is a lot easier on your own than if you have a spouse, for example that wants you to keep working, stress or no stress.

Good luck and welcome again.

Easysurfer

 

[gauss]

Hi Rachel,

You might want to read "Stop Acting Rich: ...And Start Living Like A Real Millionaire" by Thomas J. Stanley. He also wrote "The Millionaire Next Door".

-gauss

 

[rachael777]

replies

thanks for the feedback
I have no dependents and will pick up that book. I Did read The MIllionaire next door and in fact have that book. Very good book. Thanks for the feedback.

 

[RunningBum]

Hi all
...

I see a lot of people here with 2-6 MM. I do not have that now.. nor am I aspiring to that... I do not feel I need it. realistically though if my net cash flow goes according to plan my rentals will cover my needs so all my income can be saved from late 2018 on (and then my savings and investments can build to that higher amount) and still not be scrimping...
...

Welcome! Sounds like you are doing really well.

Not that it really matters, but most people would count the values of the rentals, less loans on them, as part of your net worth. My guess is that this would put you in that range. It seems to me that you are in very good shape.

It's also smart that you are recognizing that your budget will change in retirement with time to take trips or do other activities that have a cost.

Presumably you've learned from your divorce how to protect your assets if you get remarried, which even though you may not want to think about it, does bring the chance of another divorce.

Just thinking of anything else that could derail you. Make sure you have solid liability insurance, especially with rentals since someone could get injured on your property and find a way to blame it on landlord neglect and go after you. I'm guessing you're already handling this but it's worth mentioning.

 

[golfnut]

Welcome from a fellow Naperville member!

 

[rachael777]

Hi. figuring out this reply thing.. now doing 'quick replys'. All homes including my own are in an LLC. As my 'housing asset' base grows I may do a series LLC or different LLCs to split the assets that way. I do NOT have additional liability insurance but I think I will look into an umbrella policy today of up to 1MM. get some quotes etc.

and yes agree to protecting assets in divorce but really just in general.. .. knowing an aggressive accountant and attorney is a necessity..

 

[rodi]

Welcome to the forum.

I am impressed with your goal oriented approach to all of this.

I would definitely include the net value of the homes in your net worth. I assume YOU own the LLC, so therefore you own the underlying value of the LLC's assets.

I agree completely with getting an umbrella policy. Given your number of rentals, you might want to consider more than $1M. One litigious tenant (or friend of a tenant) who sues for slip/fall can give you a very bad taste of the risks. The LLC corporate shield can be pierced.

 

[rachael777]

Listing my homes in my asset base I would have a networth of a little over $800 k but i feel cash or cash equivalents are more important. I do not plan to sell these homes and would lose my cash flow if I did. I also do not include my 'emergency fund for me' and my 'emergency fund for the rentals' as those are not able to be used (or prefer not too unless a DIRE emergency). My house is a nice ranch near downtown on an acre lot. it is in a nice area but an area where folks are more well off and not as 'friendly'.I used to live in downtown Naperville with one of those older homes w a front porch, hardwood floors, little nooks and crannies in the house, people knew each other and mowed their own lawns etc and nearer the action. I miss that. Where I live folks are older than me and do not seem to share the same neighborliness

 

[karen1972]

Looks like you have a good plan. Not sure what type of emergency fund you have for the rentals (ie. lack of tenants, bad tenants, major repair?), that would be my only concern as a major flood could cause some major hiccups in your cash flow plus outlying of costs for repairs, etc. Since you indicated you wouldn't be selling them, then repairs/updates have to be factored in and I'd be surprised on $800k if all that cash flow was really free to be used as personal cash flow vs. some having to be re-invested in larger maintenance projects.

 

[golfnut]

Hopefully none of your rental homes are in DuPage County = high property taxes !

 

[rachael777]

Karen. my net cash flow is approx $3500-$3800/month on the 6 homes (not $800k) which reflects mgmt cost, tax, insurance, repairs, vacancy allowance, insurance. This factors in 'set asides' each month for vacancy, repairs etc and in addition I have a several thousand dollar emergency fund for large repairs. These homes were not in A1 shape when I got then so I made a number of large repairs already and was glad to have this fund or to factor that in upfront. How these 'set asides' work for me is if I do not do any repairs that month or vacancies. I 'set aside' that money in an account to take care of that when I do.. this account goes up and down accordingly. So if vacancies are as expected and repairs are as expected I should still have a true net of $3500-3800/month. if I have more than expected of either then my net goes down. As the homes smooth out I expect to cap these set aside funds (if possible) and take more net on good months. Currently I just save it and it is not reflected in net worth. I am so diligent w these extra funds as these homes were bought on contract and with a contract.. you pay or you lose the homes so whatever happened I had to get the mortgage paid. $800k real estate assets include my personal home too. I WISH I had $800k worth of rental homes!!