49 yo parent of 3 with a paid-for rental house

[scooterdog]

New here, enjoy what I'm seeing, and here are my details:
- married with kids ages 10, 5 and 3, living in a high-cost area (Washington DC suburb)
- aim to retire at 67 (and haven't planned on doing it earlier)
- currently have $450K in 401k/IRAs, 65% index mutual funds, 20% index bond funds, 15% index int'l funds
- income $170K/y, spend $150K/y (will be working this year to lower the expenses)
- no debt other than a $700K mortgage at 3.87% (just refinanced from 4.37%)
- fully paid-for rental house, worth at least $700K (California), $3K rent/mo (net included with income number)

We are outside the 2 out of 5 years residency for the California house to claim tax-free capital gain (house was purchased over 20 years ago), have thought about a 1031 but don't really 'need' to transfer equity to where we live (we like our current house very much, no desire to trade-up).

A question I have would be how the rental house would figure into FI/RE. It isn't a problem at all to maintain it as-is, as a rental, and both personally and professionally moving back to Cali isn't in the cards. Do we stay the course? Any advice appreciated!

Scooterdog

 

[jimnjana]

A 1031 exchange could be done into another rental property perhaps in an area you like to could vacation at or perhaps retire to some day.

 

[scooterdog]

Good point

Thanks for the input. Perhaps one problem is that we don't know where we'd like to retire, as it may be affected where the kids are located after they graduate (what, 15-20 years from now?)

Or maybe we just make up our mind that it's San Diego CA and be done with it - the kids have to visit us.

 

[Meadbh]

Welcome.

If your rental house is netting you ~5% of its value per annum, and you have good tenants, and you don't need the money, and the CA market is down, why would you sell it now?

You don't have much in investments other than the rental property, but if you plan to continue working for another 18 years, you can fix that. But you need to find a way to save more than $20K on a $170K income. I agree that it's time to critically examine your expenses, whether you plan to ER or not.

When you do retire, the most obvious way to go would be to sell your current home and move to the San Diego home. If you don't like it there, you could sell it after you qualify for the capital gains exemption.

Of course, a lot could change in 18 years!

 

[rodi]

A paid for house in San Diego is a sweet thing. (I hope to have that as my primary next year.)
and, presumably, you've locked in the prop 13 tax rates... so your carrying costs are low.
and, since it's at least 20 years old, there's no nasty mello roos (an evil thing that's california specific.)

Not sure how "down" the house prices are in San Diego - there's really reduced inventory and prices are approaching the 2005/2006 bubble prices, in select areas. A house near me is listed at peak price - and getting a lot of traffic.

But with 20 years in the house - the cap gains will be significant... something to consider.

I say - move back to California, let the kids visit you.

 

[scooterdog]

You are correct Rodi, the property taxes are very low, no Mello Roos, and it is the capital gains that would be eliminated should we move back into the place ~15 years from now when the youngest hits college.

1700 sf is fine for two adults, for a family of five we cannot imagine living there again (but of course families in SoCal do it all the time ).

Agree Meadbh that we need to save more, I'm going to start an examination of 2012 expenses and show it to the SO. Should be an eye-opener for both of us.

The thought of the kids being 'forced' to visit SoCal in the winter is a fun thought-experiment. Shouldn't be that hard to get them to visit, when I think about it.

However I was in San Diego for a conference just last week, and it was actually colder there than in Maryland! It warmed up to 70F the day I left though... poor timing.

 

[rodi]

Last week was freaky cold. I live pretty close to the coast and we had a layer of ice on the water in the dog's bowl in the back yard.

It hit 80 this past weekend. Go figure.

1700 sf... and the age. I'm guessing Clairemont, UC, Mira Mesa All are areas that have seen pretty big price increases in the past year.

 

[obgyn65]

Welcome to the board.

 

[scooterdog]

Good guess Rodi - actually the rental house is in the Westside of Los Angeles. We lived in Solana Beach for a few years about 10 years ago now, and got to know the area. Who knows, my current Mega Corp has HQ there, so in the career ladder it might lead us back, but it would have to be for something amazing, frankly.

The prospect of living for a few years with an empty nest in Mar Vista isn't a bad thing either. We just couldn't live there with growing kids thanks to the poor schools in LAUSD.

 

[rodi]

Nice place to have a rental, scooterdog. I have lots of friends/family in the LA area - and the westside is not a cheap place to rent.

 

[scooterdog]

Thanks Rodi for the kind word. Good luck on getting mortgage-free next year!